Global stocks, including the TSX, are priced for a 2020 recovery in both economic growth and corporate profits. If that’s accurate, the most likely market scenario features outperformance by downtrodden energy, materials, industrial and financial stocks. Because a recovery is already reflected in stock prices, at least in part, overall market gains would be reasonable but not exciting.
The opposite scenario would see a profit resurgence fail to appear, and equity prices would have to adjust lower for reduced expectations. Companies that are able to generate earnings growth – technology and health care stocks have been the most reliable sources of growth when it gets scarce – will receive an outsized percentage of new investor assets and their stock prices will climb.
So equity market outlooks for 2020 are not quite a binary proposition but it’s close – we either see the expected recovery or we don’t. There is a middle ground scenario where growth disappoints but not by much, but even that event will probably feature an uptick in volatility because of the optimism already priced in.
Citi global strategist Robert Buckland is leaning towards pessimism where earnings growth is concerned. In a Jan. 3 research report, he definitively stated that profit forecasts are too high, “consensus expects [earnings] growth of 10 per cent in 2020 … we expect 4 per cent”.
Mr. Buckland went on to note that global profit growth will come in at around one per cent for 2019, six percentage points below analyst forecasts at the beginning of the year. He thinks analysts will be overly optimistic again in 2020.
BofA Securities (formerly named Bank of America Merrill Lynch) quantitative strategist Savita Subramanian believes earnings growth will accelerate in 2020 to 8.0 per cent. The strategist included a warning with the forecast, however, urging investors to ‘brace yourselves for a weak start’ to 2020 because companies were guiding profit estimates lower.
Portfolio strategy will be difficult this year as investors will have to position both to benefit from a potential growth rebound while protecting themselves from the fallout from possible disappointment. This coming yeawr is likely to reinforce the lesson that diversification, while occasionally boring, is always a good investment idea for the long term.
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
Ten important questions to ask before buying a stock
Financial investments are one of the most important assets in people’s lives. Yet many investors receive little education or training before putting their hard-earned money to work in the stock market. Lured by the prospect of realizing high returns, investors often learn by trial and error – and unfortunately, investment mistakes can be quite costly. To help limit risks of a painful loss, Jennifer Dowty suggests asking these 10 questions before buying or holding onto a stock. (For everyone)
Bay Street analysts’ lowest-rated stocks outperformed top-rated ones in 2019
Bay Street analysts didn’t do a great job of picking last year’s winners. In fact, you would have been better off betting on the most-hated names. Tim Shufelt reviews just how bad the sell-side made out in their projections for the winners and losers of 2019.
Four ways to pay less to trade stocks online in 2020
After the kind of year stocks had in 2019, it’s hard to get too worked up about money spent on online trading commissions. But minimizing the cost of buying and selling stocks through an online broker is a basic way of reducing costs and thereby increasing returns over the longer term. Rob Carrick provides some guidance on how to do just that.
Expect to make a killing off Canadian bank stocks in 2020? Forget it
For investors who count on Canadian bank stocks to deliver steady profit growth and market-beating returns, their performance in 2019 was only so-so. Brace yourself: Analysts expect 2020 won’t be much better. David Berman reports.
Others (for subscribers)
Gordon Pape: I’m keeping a close watch on these four stocks in 2020
Tuesday’s Insider Report: CEO of this large-cap dividend stock gets a $24-million payday
Wednesday’s analyst upgrades and downgrades
Number Cruncher: Even a simple ESG lens can add a new dimension to stock-picking
Number Cruncher: After a banner year for U.S. stocks, strategy eyes downside protection
Others (for everyone)
Crisis-hardened markets have learned to look past military flare-ups
Tesla’s market value eclipses GM and Ford - combined!
Oil price spike clouds U.S. corporate profit outlook, putting investors on edge
Five ESG trends for Canadian investors to watch for in 2020
Globe Advisor
Where to invest in 2020? Three investment firm CIOs share their strategies
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Ask Globe Investor
Question: Do you know of any Canadian funds or ETFs that invest in infrastructure and telecoms in India? The population is very young, and millions will move from rural to urban areas in the next 20 years.
Answer: I don’t know of any India funds either in Canada or the U.S. that are that narrowly focused. There are several funds and ETFs with a broader mandate, whose portfolios will include a lot of telecoms and infrastructure companies. The oldest in Canada, dating back to 1998, is the Excel India Fund, now owned by Sun Life. As of Oct. 31, it was showing a 10-year average annual rate of return of 8.12 per cent. However, the MER is very high at 3.3 per cent.
For a cheaper alternative, look at the iShares India Index ETF (XID-T). It hasn’t been around as long (it was launched in January 2010), but its MER is 1.09 per cent. That’s high for an ETF, but still much cheaper than Excel. The fund tracks the performance of India’s Nifty Fifty Index and was showing an average annual return since inception of 7.23 per cent as of Nov. 30.
--Gordon Pape
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What’s up in the days ahead
Ian McGugan presents the skeptic’s guide to the gold rally.
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Compiled by Globe Investor Staff