10 Hot Investment Themes for 2020

2. The Fed’s Corrective Surgery

The Federal Reserve’s three interest rates cuts have extended the U.S. economic expansion’s duration. Knowing that the effect of monetary policy lags, and given the Fed’s limited ammunition with the federal funds target rate at 1.50–1.75%, Adam does not anticipate that interest rates will be altered in 2020. The ongoing expansion of the Fed balance sheet will provide stealth easing as it delivers further liquidity, he says. (Photo: Shutterstock)

3. Tunnel Vision on the U.S. Presidential Election

Until Nov. 3, investors will have tunnel vision when it comes to U.S. politics. Congressional gridlock is the likely outcome, but uncertainty remains at the top of the ticket. The determination of the Democratic candidate may last into the summer, increasing the probability of the Democratic Party’s first “brokered convention” since 1952. History suggests that positive economic data favors the incumbent, but given divisions across the country, Adam says, the election may be determined by key swing states Pennsylvania and Wisconsin. (Photo: Shutterstock)

The ranked performance of the largest broker-dealers in Q2'20 was greatly affected by the COVID-19 pandemic, as the largest banks raised their loan loss provisions for the second quarter in a row. Click through the gallery to see how they compared. (Photo: Shutterstock)

5. See the Bigger Picture for U.S. Equities

Following U.S. equities’ best year since 2013, the macroeconomic backdrop remains supportive with muted risk of a recession, easing financial conditions and lower interest rates. Last year, price-to-earnings expansion largely drove performance, but 2020 should renew the emphasis on earnings growth, which Adam forecasts at 5% to 6%. History will play a role as well. In presidential election years since 1936, the S&P 500 has rallied 9% on average and was positive 86% of the time. In the case of no recession (the Raymond James forecast), the trend is an average return of 10.7% and positive 94% of the time. The firm’s base case is that the S&P 500 will notch new highs and rally to around 3,350 by year-end. (Photo: Shutterstock)

6. Double Vision of Favorite Sectors

Raymond James still favors cyclicals over defensives: information technology, communication services, financials and industrials vs. a single defensive, health care, which lagged the broader market in 2019 because of political risk. Adam says this sector selection has the firm seeing double, as a bias toward these sectors is inherently beneficial to small-cap stocks. From both a market cap and revenue perspective, he notes that small-cap carries its highest exposures and weightings toward these same sectors. (Photo: Shutterstock)

7. Near and Far Sights for Tech Sector

Adam expects the technology sector to stand out again this year. His near sight is focused on earnings visibility, which remains robust with the anticipated rollout of 5G. The transition from 4G to 5G is the biggest enhancement in wireless technology in a decade, so his far sight makes him believe this will be a multi-year catalyst for everything from semiconductors to phone carriers and benefit other industries as well. (Photo: Shutterstock)

Nov. 24: The Dow Jones Industrial Average hits a record high of 30,000. For the day, it rose more than 450 points to close at 30,045. The S&P 500 and the Nasdaq both improved by about 1.5% to close at about 3,635 and 12,037, respectively.  (Photo: Shutterstock)

9. A Panoramic View of the Dollar and Oil

The U.S. dollar rallied six times in the last seven years, but a further broad-based rally is unlikely, Adam says. He says a stable, slightly weaker dollar is a positive for commodities and specifically oil prices, which he predicts will recover to six-year highs by the end of 2020 and rally to $65/barrel. (On Monday, oil prices topped $70/barrel in the wake of the assassination last week of Gen. Qassem Soleimani of Iran, according to The Financial Times.)

10. Volatility Is Hiding in Plain Sight

Last year was the best one for U.S. equities since 2013 and the best year for aggregate bonds since 2002, but investor complacency and elevated expectations are evident, according to Adam. However, with relatively more expensive markets compared with last year, volatility is hiding in plain sight. Headline risks abound in 2020, making it incumbent on the firm and investors and their advisors to decipher whether, and when, any of these headlines demonstrably alters their economic or asset class views. (Photo: Shutterstock)