BANK OF AMERICA: These are the 5 key themes to finding the right stocks in 2020, from buying up value to looking outside the US

Though US stocks are poised for a good start to the decade, investors could see greater returns from emerging markets and European firms, according to BAML. Crowded positioning in US stocks, reduced risk from Brexit uncertainty, a potential partial trade deal between the US and China, and interest rate cuts around the world establish a positive backdrop for equities outside the US.

The analysts also recommended shifting positions from globally exposed firms to companies with greater domestic focus. While the 2010s saw globalization move economic power toward Asia and, specifically, China, the team said they believe the trend will begin to reverse and move supply chains away from the region.

"We believe globalization has peaked, with recent political trends (trade war and national security concerns) and economic trends (rising costs in China and improving automation technology) motivating the US and Europe to lower its dependence on the region," the team wrote.

Past calls for companies to prioritize profits over all other factors are waning, and environmental, social, and governance considerations matter "now more than ever," BAML wrote.

This kind of investing, deemed ESG after the three prioritized factors, should see new popularity as investors look to quell unnecessary risk. Three of the five major US CEO or chairperson departures in 2019 involved ESG-related scandals, according to the bank. In Asia, nearly three in four firms with credit downgrades over the last five years had below-average ESG ratings, the analysts added.

A previous BAML note detailed how increased interest in ESG investing throughout Europe helped higher ESG-rated firms outperform major indexes. The trend "may be a harbinger of things to come," the analysts wrote, with preferences predicted to change among retail and institutional investors.

The US-China trade war made headlines that boosted market volatility through 2019, but BAML economists expect the conflict to focus on the two nations' tech companies in the next year. Potential outcomes include US efforts to impede Huawei Technology's global expansion, sanctions against other Chinese firms, and US measures to limit investment in Chinese companies.

The projections led BAML's team to downgrade the tech sector to "marketweight," as separating supply chains from China could bring "some short-term pain" for US manufacturers.

"A significant move towards US-China decoupling could be extremely painful, leading to a massive uncertainty shock that could precipitate a global recession," the analysts wrote.

The bank's analysts forecast an 8% improvement in S&P 500 earnings in 2020, and expect value stocks to benefit from the increase more than growth or momentum firms. Investors won't just want to ride the wave of lifted profits, but instead look to find the cheapest opportunities for portfolio growth, BAML said.

"When profit growth is scarce, investors pay a premium for growth," the team wrote. "But as growth broadens out, investors seek out cheaper opportunities."

Active fund managers' concentration in momentum stocks sits near record highs, leaving plenty of room for allocations to shift toward value companies, the analysts added. The bank views financials and "disruptees" as the sectors best positioned for a growth-to-value rotation.

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