Active equity managers will outperform the indexes in 2020 – the first time in a decade that this will happen, said Bob Doll, chief equity strategist at Nuveen, a global financial services firm.
Reversing a long-standing trend in which active managers have underperformed the indexes, active manages should benefit from a good economy and rising interest rates, which will create tailwinds for them in 2020, said Doll, a financial industry thought leader.
Doll makes New Year’s predictions each January. One facet that he missed in 2019 was the magnitude of the equity returns that occurred. He noted that he got the direction right but not the size. Doll released his 2020 predictions Tuesday.
The economy is okay in the United States and abroad and there is an almost zero chance of a recession this year, Doll said. The global GDP will grow by 3% and the U.S. economy GDP by a little more than 2%. In the short term, 2020 will be a “year bouncing around” for the economy and the markets, but on balance it will be good, he said.
Doll added that the current economy is “chronologically old but economically middle-aged,” a phrase he said he borrowed from another economist but that he found telling and accurate. The best bet for the next recession is 2021. However, if the “skirmish” with the United States and Iran continues, it will be bad for markets worldwide.
Inflation and 10-year-Treasury rates will go up about 2%, at least until the election. The slight increase is not as important as is knowing which direction the factors are moving.
Corporate earnings will fall short of expectation because of wage increases, Doll said.
U.S. stocks, bonds and cash will remain expensive and non-U.S. stocks will outpace U.S. stocks as the dollar weakens, he said. Value and cyclical stocks will out-perform growth and defensive stocks. This is a direction that the market started moving in last September, and Doll noted there will be more of that to come. "At the same time," he said, "valuations will be up more in 2020 than they were last year.”
Sectors that will perform well this year are financials, technology and health care; and ones that will not do as well are utilities, real estate and discretionary consumer items.
“Technology is always a controversial asset class and there we will have winners and losers within the sector but on balance it will improve,” Doll said. Likewise, health care, which underperformed last year, will come and go depending in part on who is leading in the presidential election polls, but overall it will improve.