It is safe to say the 2019 has been an eventful year in the USA, ending with Donald Trump impeached and set to stand trial next year. How this impeachment progresses and the eventual outcome remains to be seen with Republicans and Democrats controlling different political houses in the US. However, if you look forward to 2020, what does this hold for the US stock market? What type of stocks should you be looking at and which sectors might fly?
Immediate outlook
As regards to the US economy there are still many unknown factors which could and will likely impact economic growth over the next 12 months. The conclusion of a partial trade deal with China has been welcomed but many experts believe the agreement will very quickly start to unravel. The US is also in dispute with the European Union with the only country Donald Trump seems happy to deal with being the United Kingdom. Opinion is split as to how the economy will perform in the next 12 months and whether indeed Donald Trump will end next year as president.
Technology companies
It is fair to say that technology shares tend to get carried along when markets are showing good momentum. The vast majority of technology companies will never fulfil their perceived potential but those that do can make a fortune. We only need to look at the likes of Facebook, which revolutionised the social media sector, to see how big these companies can become. It is also likely to be another interesting year for electric car manufacturer Tesla which probably epitomises the technology sector more than most, volatile!
Banking sector
If the US stock market does begin to wobble and investors decide to take profits, this will likely put the banking sector under the spotlight. This is an area of the market which tends to be seen as more steady than dramatic as well as often offering a relatively high dividend yield. When you bear in mind the current level of US interest rates, for many people dividend yields are very important. You can also make the same argument for utility companies which often show steady long-term progress.
Pharmaceuticals sector
Many people look at the pharmaceutical sector in a similar fashion to technology although in many ways it is even more risky. By far and away the vast majority of pharmaceutical “superstars” of the future will fall by the wayside as a consequence of funding issues, competition or perhaps trials that fall at the final hurdle. However, pick a winner and you could be in a position to bank serious profits!
Spreading the risk
While it can be tempting to chase the hot sectors, such as technology, pharmaceuticals, etc there will be a point when markets will turn and often turn very quickly. Therefore, if you are looking at a long-term portfolio it is essential that you introduce a spread of risk amongst different companies, different sectors and in some cases different countries. Yes, this may hold back your performance when the technology shares and pharmaceutical minnows are flying but it also gives you backbone in more troubled times.
Conclusion
If you take a top-down approach to investing, looking at different sectors and then drilling down to different companies, this can prove very lucrative in the longer term. However, as we mentioned above, it is extremely risky to put all of your eggs in one basket however tempting this may be!