Equities: Select-Sector Trends 2020

Unlike in 1999 and 2000, however, bonds don’t offer much of an attractive alternative.  Back then, yields were in the 5-7% range.  Today, even 30Y yields are still below 1.75%, and 10Y yields remain below 1%.  As such, given the low level of bond yields, one question arises: can equities sustain much higher valuation levels over the long term as long as interest rates stay low?

Equity-sector relative performance looks a great deal like what it did during the late 1990s.  Information technology, health care and consumer discretionary stocks led the 1990s, 2010s and so far in 2020 (Figure 2-4).  Meanwhile, energy and utilities did poorly in these three periods.  2020 has a few differences: in contrast to the 2010s, materials and telecom stocks did well.  Materials stocks also underperformed in the 1990s but telecom did quite well in the first internet boom. 

The scatterplots of the 1990s versus the 2010s reinforce the idea that the two decades resembled one another.  Moreover, 2020 has been, in many ways, an extension of the 2010s with a similar group of sectors outperforming (Figures 5 and 6).

Expectations for 2020’s trends to persist as we head deeper into the decade should be tempered as trends from one decade sometimes don’t continue into the next.  For example, during the first decade of the new century a very different set of stocks led during the difficult period from 2000 to 2009.  Energy stocks, which had been among the worst performers during the period of depressed oil prices during the 1990s were the big winners of the “noughties”.  Meanwhile, the tech and telecom high-fliers, which led the 1990s, suffered a sharp reversal during that first decade of the new millennium (Figures 7 and 8).

Sector-relative performances reversed again from the 2000s to the 2010s.  Energy, materials and consumer staples, the big winners of the 2000s, were among the worst performers of the 2010s (Figure 9).  While IT and consumer discretionary stocks, which underperformed, turned out to be big winners in the 2010s (and in 2020). 

2020 is just the first year of the decade.  There is a long way to go.  The sectors that did well in the 2010s and 2020s may not turn out the be the ultimate winners of the decade.  As the 2000s and 2010s taught us, sometimes it’s the most beaten down sectors that have the greatest value.