A strong performance by Amazon has helped propel the FAANGS to new highs. A good holiday season for retailers was underlined by the Johnson Redbook survey, with sales rising 6.2% y/y last week. The positive end to 2019 for consumer discretionary stocks provides a good moment to consider the possible winners for 2020.
The list could include sectors that are able to cut costs from driving through efficiency gains – consumer staples, industrials, communication services and financials. By contrast, defaults are a concern in the energy sector, which despite a recent rally in oil prices, has under-performed the S&P 500 by a wide margin in 2019.
Investors with ‘deep pockets’ are reportedly buying up ‘cheap’ assets in the shale industry on the premise that fuel demand will remain strong. Natural gas consumption rose by
10% y/y last year. However, potential litigation costs could put a cap on any rally in energy stocks. The ‘growth at all costs’ business model is being challenged on multiple fronts, not just by investors.
It is not only energy companies that are vulnerable to climate lawsuits. Amazon is being criticised for waste (packaging).The backlash by ‘environmentally conscious shoppers’ will be a reputational risk for companies operating across different sectors of the economy – transportation is particularly vulnerable. Climate change and the rising costs of decarbonising constitute possibly the biggest threat to equity valuations. President Trump may not be concerned, but a growing proportion of Americans are worried.
