2020 has become a thing of the past, and the economic development report cards of countries around the world have basically been confirmed. 2020 is also destined to be an extraordinary year, as the public health events of the epidemic have caused varying degrees of impact on global economic development. In the United States, even if the US GDP can maintain a slight increase in the fourth quarter, the annual GDP may still face a decline of 3.4% to 3.6%.
Against this background, the performance of the US stock market has experienced dramatic ups and downs in 2020. At the end of 2020, among the constituent stocks of the Dow, Apple performed the best, with an annual increase of 80%; Boeing performed the worst, with an annual decline of nearly 34%. The Nasdaq rose 44% for the year, while the S&P 500 index rose 16%.
Small-cap stocks related to medical concepts won the annual growth champion, among which Novavax once rose 30 times, but the risk is not small. The most popular this year is the new energy automobile industry known to the public. The corresponding companies include Tesla, Weilai, Ideal, and Xiaopeng. In addition, the entire technology sector, including semiconductors, cloud computing, e-commerce payments, etc., is also an important driving force for the rise of the US stock market in 2020.
Entering 2021, investment banks such as Goldman Sachs, Morgan Stanley, and CICC have all released their outlook for this year. In 2021, what will be the global economic trend, and which sectors and companies in the US stock market need investors to focus on and be vigilant?
"Recovery" becomes the economic key word in 2021, investment banks have different attitudes towards the U.S. stock market
To sum up investment banks' forecasts for the global macro economy in 2021 in one word, that is "recovery".
Factors such as the proactive fiscal and monetary policy stimulus of major European and American economies, the stabilization of emerging economies, and the large-scale vaccination of vaccines will promote the "recovery" of the global economy.
In the latest World Economic Outlook, the International Monetary Fund predicts that the global real GDP growth rate in 2020 will be -4.9%, and the real GDP growth rate in 2021 will be 5.4%.
However, there is uncertainty about the slope of the global economic recovery. According to the three scenario hypotheses proposed by the International Monetary Fund, the optimistic expectation of the global economic recovery slope will reach 6%, the neutral expectation is 2.8%, and the pessimistic expectation is 2%.
Chart: The global economic recovery slope in 2021 (three scenario assumptions)
Specific to the US economy in 2021, although most institutions are optimistic about it, the recovery process may not be smooth. JPMorgan Chase predicts that the US GDP will shrink to 1% in the first quarter of this year, and many states have issued new restrictions that are the main reason for this pessimistic expectation.
Regarding the future direction of the U.S. stock market, institutions have different views.
Goldman Sachs, Morgan Stanley and other institutions continue to be optimistic about the US stock market. Goldman Sachs US stock strategist David Kostin predicts that by the end of 2021, the S&P 500 index will reach 4,300 points; the profits of S&P 500 constituent companies have rebounded sharply, and are expected to increase by 29% to $175 in 2021.
Morgan Stanley said that there is a lot of upside in global stock markets, and the S&P 500 index is expected to hit 3,900 points by the end of 2021. Continued policy stimulus has kept the price-earnings ratio at a high level, and the stock markets in developed markets will see double-digit gains in the future.
Institutions such as JP Morgan Chase, UBS, and Citigroup hold the opposite view. Mislav Matejka, the chief equity strategist at JP Morgan in Croatia, downgraded the U.S. stocks to neutral and believes that U.S. stocks are no longer worthy of overweight assets.
UBS believes that investors should expand the scope of their investment portfolio and should no longer be limited to large US companies, and said that US stocks may underperform global stock markets; Citi believes that the current US valuation is too high.
Although they have different opinions, they basically believe that the US stock market will not repeat this year's "roller coaster" fluctuations in the future. Therefore, in view of the possible market trend, if investors choose sectors and companies that follow the trend, they will have stronger earnings momentum.
In 2021, the economy bottoms out and rebounds. Which industries will become the "guests" of investment banks?
In addition to forecasting trends in the macro economy and the broader market, global institutions also have their own views on specific industries.
First of all, in the context of global macroeconomic recovery, procyclical industries will be attractive.
KPMG China believes that the consumption and service industries will continue to pick up and become the main force in the next stage of economic recovery; iFund expects business in cyclical industries to rebound sharply; BlackRock's overall strategy mainly favors those who will perform well even if financial support is disappointing At the same time, cyclical asset exposure is also worthy of attention; BNP Paribas pointed out that the long-term profit growth rate of food and major products retail is expected to increase by nearly 3%.
Using this as a reference, retail consumer stocks may have unexpected performance in the new year.
Specific to individual stocks, Amazon can be said to be one of the stocks that is difficult to ignore. As a retail technology giant, Amazon has not only sold goods online, but also extended its reach to offline purchase scenarios. Because of this, consumers will continue to flock to e-commerce websites to order goods during the period when the epidemic is still severe; and after the epidemic has improved, consumers will also become dependent on Amazon.
If there is something Americans love, it will probably be their pet. Therefore, pet e-commerce Chewy may benefit in the long term.
According to data from the American Pet Products Association, the American people spent nearly $100 billion on pets in 2019, and this value has been increasing for many years. In 2020, people will buy pet products through online channels, but due to the impact of the epidemic, the consumption capacity of 100 billion US dollars will be suppressed. Therefore, this year the American people's consumer demand for pets may be further released.
(Source: iiMedia Consulting)
Some analysts pointed out that not only Amazon, Chewy, but also companies such as BJ, Shopify and Target are also expected to become front runners in the retail field. Take BJ as an example. It operates a wholesale business and has 220 stores in 15 states. Its stock price has risen 71% in the past year, and its price-to-earnings ratio is still only 14 times.
Second, due to the impact of the epidemic in 2021, the cloud computing industry, including SaaS, still has enough charm. Janus Henderson pointed out that telecommuting is an industry benefit that needs to be focused on; BNP Paribas believes that telecommuting and cloud computing are investment opportunities in 2021; in addition, BlackRock and China Securities also stated that cloud computing and SaaS are their respective optimistic field of.
According to data from Forrester Research, the global public cloud infrastructure market will grow by 35% in 2021 to reach 120 billion U.S. dollars. Cloud computing will continue to "take a central position" in the recovery of the epidemic; the research company said: "By 2021, Reaching new peaks, leading to higher enterprise adoption rates, cloud revenue and business value."
Figure: Global public cloud service end-user expenditure forecast (US$ million)
Currently, the top three public cloud providers in the world are Amazon, Microsoft and Google. Amalgam predicts that AWS's revenue in 2021 will exceed the sum of the next three competitors, but AWS's revenue growth rate will be lower than the sum of Google Cloud and Microsoft Azure.
Amalgam analyst Park said: "Google Cloud has established a firm foothold in the ERP (Enterprise Resource Planning) field and is expected to achieve more than 40% growth next year."
At the same time, Park predicts that Microsoft Azure cloud computing revenue will exceed $25 billion in fiscal 2021, driven by the long-term needs of the cloud computing market and partners.
It is worth mentioning that the domestic Alibaba Cloud's cloud computing revenue in the third quarter increased by 59% year-on-year, reaching 2.19 billion US dollars, mainly from the Internet, financial and retail industry customer revenue. At this growth rate, Alibaba Cloud is expected to surpass Google Cloud in 2021 and become one of the top three.
Finally, the medical, health and biotechnology industries are also areas that have attracted much attention from investment banks. Janus Henderson is optimistic about innovative medical and biotechnology; China Merchants Securities said that it is expected that the rotation of the healthcare industry will become more obvious in 2021, and the gap between industry leaders and second-tier companies will accelerate; biotechnology, CRO/CDMO may be the leader Still attractive.
Last year, the share price of TDOC, a US medical company, rose 130% and became a hot stock. Benefiting from remote demand and the people's requirements for medical and health care, telemedicine such as TDOC may still become one of the most favored stocks in the capital market.
However, there are also different voices in the organization. For example, iFund opposes it, believing that under the influence of a high base in 2020, the performance growth of companies such as technology, medical and online retail will become more bleak, so it is expected that a lot of funds will flow into cyclical stocks.
What do investment banks think about the "infested" sector outside the epidemic in 2020?
In 2020, global travel demand will be restricted, and the global tourism, aviation, and hotel industries will be greatly affected. Moreover, the energy sector related to it has also been affected. During the economic downturn, the US market entered a low interest rate environment, which caused the expected profitability of bank stocks to decline, and related stocks were eventually sold off to varying degrees.
For example, Boeing’s stock price has dropped 35.48% in 2020; HOST Hotel’s stock price has dropped 15.21%; energy stock Exxon Mobil’s stock price has fallen 37.22%; Bank of America’s stock price has fallen 10.73%.
When the time comes to 2021, it seems that it is not easy for these US stocks to get out of the trough. Taking the global tourism industry as an example, McKinsey predicts that tourism spending may not return to 2019 levels until 2023 at the earliest. The travel industry has recovered partly, but it is still not as good as before.
Regarding these sectors, most investment banks remain pessimistic in their outlook for 2021. Janus Henderson said that the tourism and energy sectors may continue to be under pressure due to the epidemic; he also said that subject to the unfavorable environment of long-term low interest rates, the marginal profit of the banking industry will be dragged down.
Fidelity believes that some value areas appear attractive, but given the structural challenges in the banking and oil industries, investors are not expected to switch significantly to value stocks. The former faces the prospect of long-term low interest rates and the number of non-performing loans may increase; the latter involves companies such as BP, Shell and Total and other large oil companies to cut dividends and redeploy funds to invest in green energy.
Morgan Stanley predicts that demand for crude oil will not recover until the second half of next year. Prior to this, the downside risk of oil prices is greater. This also means that the revenue of energy-related companies in 2021 is difficult to return to the level before the epidemic.
Credit Suisse predicts that tourism (airports, airlines, etc.) and traditional retail that have been hit hardest by the epidemic will become the main beneficiaries of the gradual recovery of international tourism and other social activities. The full recovery of the economy will also drive cyclical sectors such as energy and finance, which will drive investment from a growth-oriented to a value-oriented style of rotation.
On the whole, the major mainstream banks believe that the risks in these sectors are still not small. For investors, they need to remain vigilant in 2021. It is undeniable that they will at least rebound from the trough of 2020, but when they will return to normal is still unknown. If you want to get involved in investment in related industries, companies with relatively healthy balance sheets may be the market's priority.
Source of the article: US Stock Research Institute, please indicate the copyright for reprinting.