Secular trends and economic recovery present opportunities for stocks

Macroeconomic drivers have injected considerable volatility into financial markets in 2020, leading investors to flock to large tech and communications companies levered to secular growth themes. But though the recovery may be slow, the global economy will not be stalled forever, and many firms are adapting to shifting customer behaviors in a post-pandemic world. As this recognition grows, we expect more stocks to participate in market gains.

Key Takeaways:

  • We believe the outperformance of mega cap technology and Internet stocks is grounded in the strong financial performance of the underlying companies whose business models are levered to secular growth themes.
  • While we expect these companies to remain in favor, we believe they could be joined by other businesses that have been underappreciated by the market due to their size, the sector in which they reside or the macroeconomic overhang.
  • As macro drivers in equity markets diminish, we believe active investors can be rewarded by identifying the myriad businesses whose stock prices do not fully reflect the firms’ exposure to secular growth themes, sound balance sheets or potential for participation in an economic recovery.