Technology stocks will continue to outperform the market as the forces from monopoly effects are more powerful than any threat of regulation. Unless real rates and nominal rates rise dramatically this year the technology sector will continue to see the highest growth rate and the best performance. In a low rate environment growth stocks have been the winner and will continue to be. Within our bullish technology call we also predict that one large well-known technology stock will plunge by more than 50%.
The health care sector will underperform in 2020 as the US election approaches. Both the Democrats and the Republicans will try to out-do each other on reforming the broken US health care system. The mere rhetoric in the 2020 election will be enough to increase the risk premium on US health care stocks and thus compress performance.
Companies providing 5G technology or components for 5G will outperform the market as Huawei will lose market share due to US pressure of its allies to cut ties with the Chinese technology company.
IPO stocks underperformed in 2019 but we expect a huge comeback in 2020 as the quality of IPOs will improve. The lesson learned in 2019 is that VC funds cannot float large money-losing businesses with no clear path to profitability at sky-high equity valuations. Hence IPOs this year will be more about profitable businesses and more realistic IPO valuations which will all drive IPO stocks to outperform the equity market.
Online streaming in music and video is raging between the technology giants and we believe we will see a major acquisition in this category in 2020 as the industry consolidates to curtail competition’s painful impact on profitability.
Sports athletics stocks will outperform this year on boost from Olympics, further gains from e-commerce penetration and market share gains from traditional fashion brands as consumers gravitate towards the “sporty fashion look”.
European and emerging market equities will outperform US equities as China’s rebound will positively impact Europe more than the US. Equity valuation convergence and profit growth pickup are also drivers.