U.S. Sector portfolio outlook, positioning, and attribution as of 12/31/2019
December 31, 2019
- We anticipate positive economic growth and market returns in 2020, though moderate growth faces risks and equity returns are unlikely to match 2019 levels.
- We expect positive equity returns in 2020 to be driven by moderate earnings growth, as valuations are at cyclical highs.
- With equity valuations back near cyclical highs, we expect increased volatility, along with increased dispersion among sector performance.
- Interest rates are historically low, and while modest inflationary pressures may support some upside to longer-term rates, we do not anticipate aggressive easing by the Fed that would lower short-term interest rates materially.
- We believe moderate growth and an advanced economic cycle warrant exposure to sectors with a mix of cyclical and secular drivers as well as sectors with limited economic sensitivity.
- Information Technology and Communication Services should benefit from enterprise technology CapEx and ad spending as the economic cycle matures, as well as secular shifts toward cloud computing and digital advertising.
- Sectors like Consumer Staples, Health Care, and Utilities provide stable earnings growth potential that investors should find attractive amid slow economic growth and equity market volatility.
- We continue to avoid sectors with some of the highest economic sensitivity, such as Industrials, Materials, and Energy.
- Information Technology
- Real Estate
- Consumer Staples