Looking back on 2019, the market had one of its best performances in years, with the equities markets collectively up more than 28%. But despite the move, many investors had to battle nebulous and erratic day-to-day news headlines, and filter out the noise to focus on opportunity. In 2020, some experts see the same need to stay focused on market growth, and elude the headlines.
“If you were to just read the headlines on whether it’s the political issues in the US or overseas with Brexit, or just the continuous tensions that we have in trade, you think we’d be down 25 or 30%. But of course it’s been the opposite. Really because investors have looked through some of the noise and focus more on the fundamentals,” said Dave Mazza, Head of Product for Direxion.
The Federal Reserve slashed interest rates three times in 2019, which contributed to investor optimism and interest in market investment.
“Companies saw extremely cheaper valuations with the selloff we saw last year, and the Federal Reserve did a full 180 from expecting markets to be in tightening mode to be one that’s in easing. And with that backdrop people have pushed through the noise and focused on lifting markets higher,” Mazza said.
Mazza now looks for an earnings recovery in 2020, amid the backdrop of recent bank easing.
“Well I’ve always learned you know, don’t find the fed, but it’s actually don’t fight the fed, the ECB, the BOJ, and all the central banks. They’ve been very supportive to Markets. And that’s a lifted investor sentiment and allowed them to focus away from the headlines, and more on what’s happening with companies. Now this year earnings were a bit weaker, but looking ahead we actually expect to see a bit of a recovery in earnings. Some of the economic data may actually still be a bit mixed. But when you’re a little in a late cycle environment there still opportunities in the equity market. And until we see evaluations actually continue to stretch to maybe those tech bubble levels, we think the momentum remains with equities,” he added.
So how can investors take advantage of Direxion ETFs to express their opinions on markets and become invested? Mazza notes that many investors have favored the Direxion Russell 1000 Growth Over Value ETF (RWGV) and the Direxion Russell 1000 Value Over Growth ETF (RWVG).
“We’ve seen our investors really take two sides of a trade very differently. And I’m really talking about value over growth or growth over value. We launched ETFs that allow investors to express that view. RWGV is growth over value and RWVG is value over growth. But what’s interesting is that even though value has under-performed this year (2019), we’ve seen more inflows into that particular ETF. And if investors want to play the recovery that could happen,” Mazza explained.
While there is much debate about whether value or growth is the better proposition, Mazza believes that until proven otherwise growth is the best option for investors.
“In my opinion though I’d stick with growth. The earnings picture for growth companies continues to look stronger. And it’s very rare at the end of a bull market do you see an interest sector or intra-market rotation. So again until we see a market selloff, that’s when we’d see a big opportunity for value. But until then stick with growth,” said Mazza.