Stifel 2020 Equity Outlook: Stay long cyclicals
On 10/13/19 we wrote that conditions surrounding Cyclicals had “de-risked” and we rotated out of Defensives (Utilities, REITs, Staples, Telco, Healthcare) that we had favored the prior 12 months and into Cyclicals. With this 2020 Outlook report we provide a “reflation stock” screen in Energy, Industrial, Materials, Financials and Technology that we believe benefits from our views, which are: better U.S. nominal GDP growth, a weaker dollar (counter-cyclical to global GDP) and a moderately higher 10Y yield. Principal risks to our call are a 2020 technical recession, policy signaling errors and an oil shock. On balance, we see our index of 25 equal-weight reflation stocks greatly out-performing the S&P 500 (by 1500 bps) in 2020E and recommend that investors take risk via cyclical sector & stock selection as outlined in this report.
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