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What is next for US large cap growth equities?

Portfolio Manager Doug Rao explains the current dynamic in large cap growth equities and evaluates the outlook moving forward.

Doug Rao

Doug Rao

Portfolio Manager

4 Jan 2021
4 minute read

Key takeaways:

  • Large cap growth companies – a handful of technology stocks, specifically – have been beneficiaries of this year’s accelerated digitization spurred by the COVID-19 pandemic.
  • As we get nearer to herd immunity and a full reopening of the economy, companies with business model advantages in severely hit industries like leisure travel may be poised for renewed growth.
  • Though systemic pressures suggest modest future economic growth globally, we think company growth driven by innovation, along with an encouraging overall setting for equities, will remain intact.

This year has cemented digitization as the primary driver of economic growth, as the digital economy has continued to thrive while the physical economy stalled amid the pandemic. As we get closer to herd immunity, we see the potential for companies with more cyclical characteristics to rebound; however, we believe innovation will continue to be the primary driver of durable growth moving forward.

Large cap companies in the pandemic environment

As consumers have chosen (or been forced) to disengage with the physical economy, they have increasingly consumed through digital means and experiences. The broad shutdown of physical locations required companies and governments to find digital connections with their consumers and employees, leading to an accelerated investment cycle in digital infrastructure. Incidentally, the large technology firms that dominate the U.S. economy are the primary providers of the e-commerce, cloud computing, hardware and software solutions that have become indispensable during the pandemic. Likewise, some non-digital large cap companies, such as certain big-box retailers, were deemed “essential” and allowed to operate through shutdowns. Thus, in the pandemic environment, many of the economy’s largest companies were able to consolidate their leadership positions, grow revenues and continue to invest in their businesses. Consequently, they have been the market leaders so far during the recovery.

Opportunity as herd immunity gets closer

As the market leadership this year has illustrated, there are stocks that have benefited as a direct result of the COVID environment. There are also those that have strong business model advantages but have been severely challenged by the pandemic. As we get closer to herd immunity and a full reopening of the economy, and as the valuations of obvious COVID beneficiaries have risen, we expect some of these more challenged areas to rebound. For instance, travel demand has been dramatically impacted in the short term. While some business travel may never return, we believe in people’s innate desire for leisure travel. Moving forward from the current trough, we see significant pent-up demand and a long period of growth for select companies in the leisure travel industry. These are companies with variable cost structures, that have been able to cut expenses to adjust to the drop in demand. While they have lost cash flow in the near term, they have not permanently impaired capital by diluting shareholders with additional equity. These companies have been willing to invest in their business during the downturn, and we believe they can continue to grow as the global economy recovers.

Growth outlook

We expect strong economic growth to reemerge in 2021 in the wake of headwinds from the pandemic in 2020 and the U.S.-China trade war in 2019. While leadership has thus far been narrow – limited mostly to the digital economy – we foresee a broadening recovery as vaccines are widely implemented and consumers are able to reengage with the physical economy. Healthy consumer balance sheets, bolstered by a robust housing market and swift market recovery, can kindle pent-up demand in hard-hit industries like travel, entertainment and dining. In the long term, though, overall GDP growth, which has been lethargic globally over the last decade, should likely remain modest. Systemic pressure from aging demographics and deflationary forces from technological disintermediation and price transparency enabled by the Internet will likely keep a lid on overall growth. However, though most companies can expect to grow at roughly the same rate as GDP, we believe that innovation can continue to fuel excess growth, as it has for many of the fastest-growing companies in the U.S.

In our view, equities remain attractive as unparalleled levels of fiscal and monetary stimulus and a historically low interest rate environment have continued to support company valuations. As the economy normalizes, we think the trend of growth being driven by innovation will continue and, thus, believe that it will be essential to continue to identify the most innovative companies in the world.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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