We forecasted a long time ago that the stock market would turn bullish in 2019. We expected a ‘risk on’ cycle in 2020 and 2021 as per many forecasts made here. Now that we are very close to having a final confirmation for this forecast (remember, for this we want the the Russell 2000 should trade above 1625 points) we can look to be well positioned for this ‘risk on’ cycle. In this article we look at the best sectors for investing in 2020. This is meant for investors who want to invest the sector or want to pick one of the stocks in some of these sectors (by breaking down the index, which requires additional research). We will not dissect the sectors to find stocks.
Note that we provide this research which is meant to be a starting point for investors.
What we mean by that is that the indices outlined in this article cannot be invested in. These are no ETFs or funds. These are indices, and investors need to do their homework to find corresponding ETFs.
The other way to make our research actionable is to break down one (or many) of the best sectors for investing outlined in this article, and look for some of the best stocks in that sector.
Anyway, what we are saying is that we provide the best sectors for investing in 2020 in this article. Investors have multiple options to make this actionable. Additional research is required, as our work is not meant to be financial advice.
Note that we tend to identify some stocks which are mostly part of the best sectors to invest in. We do so in our premium newsletter which is still offered for free until the end of 2019. Sign up here.
Best Sectors For Investing In 2020: The Method
As per the best practices outlined in our 100 investing tips we take a top down approach in order to identify the best sectors for investing in 2020. This does not only mean a sector approach but also in terms of chart timeframes (we always start with the monthly timeframe).
Finding bull markets, especially in sub-segments of global stocks or commodity markets, requires decent research and chart analysis. Investors need to monitor many hundreds of assets and markets in a top-down approach (monthly, weekly and daily timeframes) to find bull markets.
So the method we want to use to identify the best sectors for investing in 2020 is based on (1) reviewing ALL sectors especially in the US stock market and compare them against each other (2) use the monthly timeframe to to select the ones with the most constructive chart set up.
In doing so we found the 6 best sectors for investing in 2020: semiconductors, dynamic software, computer hardware, medical devices, investment services, consumer finance.
It’s no coincidence that among these 6 best sectors for investing there are 3 technology sectors, 2 finance sectors and one health. Those typically are the leaders in a bull market.
Oh, small detail, we are not interested in the news, as always. Investors only get confused by news items. Some suggest this stock bull market is outrageously bullish, and others argue that this is about to become bearish. Go figure.
#1 Best Sectors For Investing In 2020: Semiconductors
It should not comes as a surprise that the semiconductor sector is the first one ranked in our list of 6 best sectors for investing in 2020.
The semis as they are often called did something special: the broke out to all time highs recently.
In doing so they also took out the 2000 dotcom highs as seen on the first chart. That’s a big thing, and it indicates one thing: semis want to go much higher in 2020.
For an overview of the stocks in this sector we refer to the holdings of the iShaers PHLX ETF. Dissecting this ETF to find a few of the best looking stocks is certainly a recommended approach.
Semiconductors rank #1 in our list of best sectors for investing in 2020 and 2021. We forecast an upside of 40% in 2020 and 2021.
#2 Best Sectors For Investing In 2020: Dynamic Software
No surprise, the 2nd best sector to invest in is dynamic software. This is the only exception out of the 6 sectors listed in this overview that is based on an ETF: the PSJ ETF.
What is most striking on this chart is the acceleration of the upleg that started in 2016. We do expect this sector to go through a normal (classic) 3 phase upleg. In other words another acceleration is coming.
Considering the PSJ ETF as a holding for a mid to long term portfolio seems appropriate.
Dynamic Software ranks #2 in our list of best sectors for investing in 2020. We forecast an upside of 30% in 2020 and 2021.
#3 Best Sectors For Investing In 2020: Computer Hardware
The computer hardware sector looks good because of 2 reasons.
First, it is about to take out last year’s resistance and move to all-time highs.
Second, it is bouncing off support in the context of its long term rising channel.
This is a bullish setup.
Note that the 2000 dotcom highs were taken out already several years ago.
This stock market segment is worth looking into, and it deserves a top spot in our top list of sectors to invest in.
Computer hardware ranks #3 in our list of best sectors for investing in 2020. We forecast an upside of 30% in 2020 and 2021.
#4 Best Sectors For Investing In 2020: Medical Devices
Health has been an outperformer since 2009. However, within the health sector there are multiple sub sectors.
One of the most consistent successful sub sectors in health is medical devices.
The chart below makes the point: this is a beautiful setup. Not just because there is this long term uptrend. More importantly, we consider this beautiful because of the perfection of the chart. For 8 straight years the uptrend channel is respected!
Maybe the IHI ETF featured on the next chart is one of the sector ETFs that we would consider for a portfolio. It might make sense to dissect this ETF and look into the individual stocks. However, it looks like IHI ETF might be a good sector play with a high reward low risk profile.
Medical Devices ranks #4 in our list of best sectors for investing in 2020. We forecast an upside of 30% in 2020 and 2021.
#5 Best Sectors For Investing In 2020: Investment Services
Sector #5 in our best sectors to invest in is one of our favorites.
This is the investment services sector. As said in the intro we are transitioning from a ‘risk off’ to a ‘risk on’ cycle. We expect 2020 and 2021 to be a bullish period for stocks. After this we expect a stock market crash in 2022.
Consequently more investors will take positions in stocks, and investment services will do well.
No coincidence the investment services sector index is looking so gorgeous. Note that it is about to take out the 2007/2008 top which also marked all time highs.
After 2008 there has been less appetite from mass audiences to invest. Many small investors got burned in the 2008 crash. We believe that’s what this chart reflects.
A tiny push higher will bring the investment services sector to new highs, and with this constructive chart setup it will generate bullish energy to go even higher in 2020 and 2021.
Investment services ranks #5 in our list of best sectors for investing in 2020. We forecast an upside of 30% in 2020 and 2021.
#6 Best Sectors For Investing In 2020: Consumer Finance
Last but not least the consumer finances sector.
Is it worth spending a lot of time talking about this? The chart says it all, there is not a lot we would add to this.
In a near zero interest environment people are incentivized to spend more money to stimulate the economy. So taking finances to accomplish this is the consequence. That’s what this chart reflects according to us.
Consumer Finance ranks #6 in our list of best sectors for investing in 2020. We forecast an upside of 20% in 2020 and 2021.
6 Top Sectors for Investing: Log with weekly updates
This is a weekly log to keep track on our sector investing predictions throughout 2020. We update this log on (bi-)weekly basis with short bullet points to highlight whether the stock market in 2020 is developing according to our top sectors projections outlined in this article.
- First week of January: the stock market developed exactly as expected with a strong start of the year 2020. The last day of the week was somehow weaker but one day does not make a market.
- Second week of January: Stay tuned on how this week develops with some political tensions developing there might be a bit of selling but not too much.
- End of January: we witnesses some extreme but short lived volatility. We took some measures in our portfolios, and they proved to be spot-on.
- Second week of February: our forecasts are playing out as expected, the 6 top sectors did invalidate their January volatility, we are on track as forecasted.
Stay tuned, and keep following our work to get updates on the U.S. stock market. We strongly recommend to sign up to our premium momentum investing service to get detailed actionable insights on how we play the U.S. stock market with medium term trades.
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