2019 has been an exciting year, and I expect 2020 to be even better! In fact, I look for 2020 to be a tremendous year for the stock market. (And we’ll talk more about that in the Early Warning Summit 2020.)
So far, we’ve talked about how the U.S.-China trade war could impact stocks. We also discussed what might happen if Elizabeth Warren is elected president.
Today, I’d like to turn to the sectors to watch in 2020.
First let me say that I believe we’re in more of a “special situation market,” and less of a “sector market.”
As any market climbs higher, it chases fewer and fewer stocks. You can think of the market like a funnel. The market will no longer be chasing a lot of the hot sectors. Instead, it will have a more narrow focus.
Take the energy and biotech sectors, for example.
The S&P 500, which has grown to be dominated by tech behemoths like Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Facebook (FB), returned 50% for investors.
On the other hand, the Energy Select Sector SPDR Fund (XLE), which tracks oil giants like Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP), Schlumberger (SLB), and more, fell 27% over the same timeframe.
The chart below shows us how the energy sector did in comparison to the S&P 500 since 2015.
Even with the bump in November, the energy sector’s performance still isn’t very pretty!
Then there’s biotech.
From July 2010 to July 2015, stocks tracked on the S&P 500 biotech index soared more than 400%, with individual firms like Gilead Sciences (GILD) and Regeneron Pharmaceuticals (REGN) seeing even bigger gains.
But all that changed as the ramp up to the 2016 presidential election started and Hilary Clinton began talking about price hikes for pharmaceuticals in the wake of scandals surrounding firms like Valeant Pharmaceuticals – now Bausch Health (BCH) – and Turing Pharmaceuticals.
Folks mostly steered clear of the sector for the past four years or so. The industry bellwether exchange-traded fund (ETF), the iShares Nasdaq Biotechnology ETF (IBB), went nowhere.
Now, what’s interesting here is that the biotech sector seems to be showing signs of life again.
It’s not surprising when you consider the countless innovations taking place in healthcare and medicine.
For the most part, these technologies have been buzzwords for many years, but they are finally starting to make a meaningful impact on our daily lives.
We’re also seeing another hostile political environment leading into the 2020 presidential election season, which could help tilt the sector one way or the other.
Another group to keep an eye on in 2020 is small caps.
The S&P 500 reached new highs in October, and the Dow and the Nasdaq rose to new peaks in November. But smalls caps lagged their larger cousins.
Conditions have changed. The Russell 2000 index includes the smallest companies by market cap and is often used as a bellwether that tracks the overall performance of the economy. On November 25, the index climbed 2.1% and hit a new 52-week closing high.
To be clear, though, while knowing which sectors are outperforming and which sectors are struggling, it’s important to pick the right stocks. Even in a burgeoning sector, not every stock is a winner.
Now, as I look ahead to 2020, I’ve done the hard research, read the charts, talked with industry leaders, and formed a view on what’s coming next.
Are investors becoming comfortable with more risk, and potentially greater returns, that can be found in small-cap stocks?
And what could happen to drug prices if Republicans, or Democrats, win the 2020 elections?
I’m about to lay it all out for you in the Early Warning Summit 2020 on December 10.
Note: You’ll never believe what’s in store for stocks in 2020. My computer models haven’t been this active since right before the dot-com crash and the ’08 financial crisis.
In short, several headwinds are converging in the markets at once and they will drastically impact the share price of virtually every stock. Prepare now and you could have the chance to make a fortune, but ignore this warning and it could cost you dearly. I’m holding an emergency briefing on Dec. 10 at 7 p.m. (EST). I strongly urge you to attend.