Call it a strong start to the decade.
The S&P 500 could see another year of double-digit gains in 2020 as investors circle back to stock groups they left behind in 2019, says Art Hogan of National Securities. The index is up more than 25% in 2019, on pace for its best year since 2013.
The firm's chief market strategist has now set his 2020 price target for the S&P 500 to 3,450, one of the highest on Wall Street. His target is a nearly 10% climb from the current level.
"We think we can do better if things go right," Hogan said Wednesday on CNBC's "Trading Nation." "What's different this year is I think the drivers are going to be not the momentum names and not the defensive names. That was the barbell approach of 2019."
With the Federal Reserve staying put on monetary policy for now and the United States and China seemingly close to a "phase one" trade deal, Hogan said the removal of uncertainty next year will likely lead investors to reconsider buying into underloved groups.
"We're seeing the momentum side sell off, and I think that's a healthy thing. I think we're seeing people start to look at financials. I think that's really important," he said. "I think health care's going to do well in [2020], but it's going to be health care away from the facilities and the insurance companies. It's going to be the biotechs and the med techs."
Hogan's third pick fell out of favor even before this year: the Russell 2000 of small-cap stocks.
"It's been three years since the Russell ... has actually done better than the S&P 500," Hogan said. "That doesn't happen, historically. It's starting to close that gap a little bit. It got as wide as 600 basis points. It's down to 400 basis points. ... So, I think that's a gap that closes in the front half of 2020 and I think small-cap stocks will finally get some attention."
Hogan said he expects a steady 2% growth in the U.S. economy in 2020, and that should help push the largely domestic small-cap index higher.
At this point, the biggest risks to his bull case are trade and overconfidence.
"If the trade war escalates, all bets are off. So, if we don't delay Sunday's next tranche of tariffs, if we actually go even further into tariff land and this really escalates, I think we go into recession," he warned. "The [other] thing that really concerns me the most is that investors look at the fact that, all of a sudden, we have a truce in the U.S.-China trade war, and there's no immediate reaction in the economic data."
With the gap between consumer and corporate confidence "as wide as we've ever seen it," the desire for corporate confidence to catch up could skew next year's market performance, Hogan said.
Because the "lag" between higher corporate confidence and companies actually starting to spend money could last for one or two quarters, it can create a "buy the rumor, sell the news" effect among overeager buyers, he said.
"Economic data probably improves on the back end when we get the confidence back from the uncertainty around trade, but it's not going to be immediate," Hogan said. "You might get worried about that, 'Hey, we bought on the rumor of this trade truce, now we're going to sell on the news because we're not seeing manufacturing data improve immediately.' Well, that doesn't happen immediately. If you and I are thinking about building a plant, we put that decision off for a while. We don't do that in 48 hours; we do that in a couple of quarters."
Stocks jumped Thursday after President Donald Trump said the U.S. is "getting very close" to a deal with China.
