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Wall Street's top strategists favor financials and value stocks heading into 2020, jilting the high-flying and expensive growth names that have for months carried the market to record highs.
Of the brokerages tracked by CNBC that have published sector-by-sector forecasts for 2020, all said that they're overweight the financial sector.
Most liked consumer discretionary stocks as well, but Bank of America, BMO and Credit Suisse all recommended clients steer clear of staples.
The more conservative stock recommendations come with a tepid overall market forecast from Wall Street. The median strategist target for 2020 sees the benchmark S&P 500 index climbing to 3,325 by the end of next year, implying a 7% climb from current levels. The average target of 3,272, meanwhile, represents a 5.4% gain.
"Sectors like Financials (the largest portion of traditional value indices), should lead the way," wrote BMO Chief Investment Strategist Brian Belski. "Earnings growth for the broader market is slated to improve in 2020, which has historically benefitted value performance."
"Given the longer-term outperformance cycles of value relative to growth, we believe the market may soon be entering the very early stages of a 'value cycle.'"
Growth investors look for companies that they expect to post strong earnings growth and stock appreciation while value investors search for undervalued securities relative to peers and healthy dividends. Growth investing in popular internet and technology companies has ushered the major stock indexes to all-time highs over the last year.
Chipmakers, in particular, have proven a consistent winner in recent years. The VanEck Vectors Semiconductor ETF, which tracks the performance of U.S. chipmakers like Intel and Nvidia, is up about 50% since January. Meanwhile, the best-performing stock in the S&P 500 is Advanced Micro Devices, which has seen its equity price rise more than 110%.
But it's those eye-popping gains that have some looking for bargains elsewhere.
Strategists' bullish views on financials may come as a surprise to those who've tracked the marked decline in long-term interest rates over 2019. Profit margins at banks and other lenders came under pressure throughout the summer as a deceleration in economic data and three Federal Reserve cut depressed interest rates.
At one point, Bank of America Chief Financial Officer Paul Donofrio told analysts that the bank's net interest income — a main driver of commercial bank profits — could fall faster than expected amid Fed easing.
But between minimal credit risk, strong shareholder yield and reasonable price tags, financials look poised for a rebound, according to Bank of America's Savita Subramanian.
"The sector's performance has been increasingly correlated with interest rates, but the sector receives no credit for quality and cash return," she wrote on Nov. 19. "It has the highest weight in the Russell 1000 Value index and could benefit from a sustained Value rotation."
The S&P 500's 24% gain so far this year is just outpacing the SPDR S&P Bank ETF, a fund that tracks the performance of the largest public banks in the U.S. That fund is up 23.2% in 2019 and 12.1% over the last three months.
Subramanian added that Democratic presidential hopeful Sen. Elizabeth Warren poses more of a risk to health care than banks, which are already heavily regulated.
In addition to a favorable outlook for financials, BMO's Belski added that he's now overweight consumer discretionary stocks like Amazon.
"When factoring in long-term growth, the group no longer looks that expensive," the BMO strategist wrote. "Consumer Discretionary, far and away, has the highest estimated long-term EPS growth expectations among S&P 500 sectors."
Most strategists advised clients to stay away from consumer staples, however. Despite a historically low yields around the globe, BofA's Subramanian said staples show "limited upside for dividend growth" and steep leverage and payout ratios.
The sector could also underperform in 2020, she said, if macroeconomic data bottoms at the end of 2019.