It won’t be a surprise to you when I say that I expect stocks to rise this year but it’s not because I’m a “perma-bull”, as some describe me. I call it as I see it and because I expect economic growth to improve over 2020 both here and abroad, with no expectation that interest rates will skyrocket, then it seems highly likely that stocks will rise.

Before I suggest where it might be wise to direct your money, let’s look at the case for being optimistic on stocks this year:

• Donald Trump needs to get elected and he is the most market-sensitive President ever! He knows if his unusual tendencies spook Wall Street and KO stocks, he will KO his chances of re-election;
• This is the fourth year in the Presidential cycle and the second-best year for stocks. All should remember how good that was in 2019. The US was up 29%, while we added 24% (with dividends);
• As I showed in Saturday’s Report, most investment firms in the States expect a positive year for stocks but the average view suggests a 5% gain for the market is more likely. I expect it to be higher but I also expect some sell offs, as economic data and US electioneering (on top of geopolitical risks from the Middle East) come into play. Also note there are forecasters tipping 10-20% gains for US stocks in 2020, such as Longview Economics but they also think a near-term correction is highly likely, given the high valuations right now; .
• The World Bank expects global economic growth to lift from an estimated 2.4% pace in 2019 to 2.5% in 2020. And while this organisation is far from being infallible, it often gets the direction of growth right;
• Another trade deal (phase 2) and an improving Chinese economy will be good for global growth and market confidence. In Switzer Daily today, I pointed out the following: “In the US, many of the top investment groups are telling their clients that overseas [stock markets] have more upside than Wall Street. CNBC recently pointed out that ‘since 2010, the S&P 500 rose more than 188%, an annualized rate of about 11.2%. The MSCI World ex US index saw much more modest gains, climbing 50.5% overall or roughly 4.2%.”. Here’s what the Bespoke Investment Group said in a note to its US customers last month: “If your asset allocation has significant domestic exposure and little-to-no international equity exposure, we think now is an excellent time to make a shift”;
• Locally, a stronger China and a Federal Government that will have to spend big time to help the economy and the Prime Minister’s standing due to the bushfire tragedy, means we should see better economic growth in the second half of 2020. That said, I hope we don’t end up with a short recession because of the serious losses to property, business, lives and people’s confidence because of the fires; and
• Other positives such as a Brexit solution, the likelihood that the Federal Reserve won’t rush to raise interest rates, especially in an election year, and given our central bank will probably cut interest rates in February to help the economy offset the negatives from the fires, then there are reasons to believe that stocks can head higher over 2020.

So what should you be thinking about investing in for the year ahead?

Paul Xiradis, executive chairman and chief investment officer at $12 billion funds manager Ausbil Investment Management, thinks stocks will “grind higher” and it makes him like a number of well-placed sectors. “If we see things recover, we could see commodity prices lift,” he said. And he told the SMH that he likes OZ Minerals as one copper pure play with “significant upside”.

Despite a good year for Lendlease, he sees more potential for the company. “That’s been one of our better performing stocks this year and we see a significant amount of upside over the next 12 to 18 months, as the markets start focusing on them being a global leader of urbanisation projects around the world,” Mr Xiradis said. “They’ve gone out and won just about every major urbanisation project globally”.

On the ‘times up’ side, he’s getting out of bond proxy stocks. “We are reducing our exposure to bond proxies, partly because of the rotation that could occur over the next 12 months,” he explained. “Because the market is so heavily positioned one way, the rotation could be quite enormous.”

If he’s right, there could be buying opportunities for dividend-collectors out there by mid-year. I will be watching for that.

Other stocks the pros like include:

• CSR and James Hardie on a housing construction boom;
• CSL because it is a must buy, especially on any dip;
• The banks should be good on dips as well, if you can ignore possible capital losses in the short term but can be happy with the dividends;
• Of the WAAAX plays, Altium and Wisetech still have plenty of supporters;
• Link is seen as a medium-term improver as the UK sorts out its mess, post BoJo’s election win;
• Some market watchers like health stocks, such as Sonic, Healius and Integral but they have been perennial disappointment machines. Ramsay Health Care might be a better bet.

That’s it for my early year picks but let me say in closing that I thank you for being a subscriber to the Switzer Report. We will keep delivering on our promise to give you insights into how to make money out of stocks by tapping into the best market minds in the country.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.