December 1, 2020
Global Investment Strategy Team
Why we favor locking in 2020 tech gains now
Performance of the Information Technology, Materials, and Industrials sectors in 2020
We recently upgraded the Materials sectors to favorable (from neutral) and Industrials to neutral (from unfavorable), and we downgraded Information Technology to favorable (from most favorable). Both Materials and Industrials should benefit from a rebound in the global economy and industrial production. We also expect Materials to benefit from a weakening U.S. dollar and Industrials to benefit once an effective COVID-19 vaccine is widely available.
We still believe that Information Technology can outperform the broader market and can offer investors exposure to high-quality stocks with strong growth characteristics. The reduction in guidance creates an opportunity to lock in some gains and reposition toward more cyclical sectors.
What it may mean for investors
We believe that improving, sustainable global economic growth in 2021 should benefit economically-sensitive asset classes and sectors. Our upgrades to Materials and Industrials add more cyclicality to our portfolios. We also upgraded Emerging Market Equities from unfavorable to neutral.
Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets.
Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. There is increased risk investing in the Industrials sector. The industries within the sector can be significantly affected by general market and economic conditions, competition, technological innovation, legislation and government regulations, among other things, all of which can significantly affect a portfolio’s performance. Materials industries can be significantly affected by the volatility of commodity prices, the exchange rate between foreign currency and the dollar, export/import concerns, worldwide competition, procurement and manufacturing and cost containment issues. Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market.
The Information Technology Index comprises those companies included in the index that are classified as members of the GICS® information technology sector.
The Materials Index comprises those companies included in the index that are classified as members of the GICS® materials sector.
The Industrials Index comprises those companies included in the index that are classified as members of the GICS® industrials sector.
S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market.
An index is unmanaged and not available for direct investment.
Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.
The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.
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