The turning of the calendar shouldn’t, in theory, change a person’s outlook or investment plans. But we know, in practice, that this isn’t the case.
Investors often use the new year as an opportunity to reset and reevaluate expectations, while adjusting their asset allocations for the year ahead. Investors also generally tend to pay too much attention to year-to-date return figures. Since these get reset on Jan. 1, sectors with monster 2019 returns, such as semiconductors, clean energy and homebuilders, can, for better or worse, suddenly look less attractive.
Slowing global economic growth, rising corporate debt loads and the uncertainty surrounding a never-ending U.S.-China trade war present significant risks to the financial markets in 2020, but I’m not necessarily bearish. A potential recession doesn’t appear likely until at least 2021 and the Federal Reserve with its $400 billion (and counting) of “not QE” seem ready to support asset prices at all costs at least through November’s presidential election. If the Fed is indeed able to engineer a soft economic landing and manage to keep the U.S. economy out of recession, there’s no reason to think the S&P 500 couldn’t produce another year of 10%+ gains in 2020. But the macro risks could make a correction or even a bear market just as likely at some point during the year.
That’s why many of my top picks for 2020 are of the defensive variety. In 2019, investors focused primarily on large-caps, growth and tech - three themes that have played out well in years past and delivered above-average performance again. This year will likely be more of a stock-picker’s market in which investors will need to be a bit more selective in order to generate outsized gains.