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Stocks Set for a Strong 2020? Top-Ranked ETFs to Pick

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The decade-long bull market in U.S. stocks, which is the “the king of all bull markets,” will likely continue in 2020, if we go by the analysis of big investment banks. The current bull market, which started on Mar 9, 2009, had returned 468% for the S&P 500 through the first day of November, thus being the longest and best-performing recovery since World War II.

If There is a Split Congress in 2020, Stocks Will Soar

The argument for an impending 2020 rally put forward by Goldman Sachs is interesting here. Goldman Sachs’ analysis reveals that since 1928, the median S&P 500 12-month return under a divided government is 11% versus 8% under a unified government.” That’s because a divided Congress — unable to pass either party’s initiatives or proposals — tends to generate better returns than when Congress is ruled by a single party.

In this case, Republican President Trump’s heightened trade war tactics may not be successful amid a divided Congress. On the other hand, Democrats’ intension to raise taxes and curb deregulation is also likely to face opposition. And both factors should act as tailwinds to stocks (read: Democrats Favoring Tax Hikes: Muni Bond ETFs to Soar?).

“Great Rotation’’ in 2020?

JP Morgan analysts see 2020 as a year of the “great rotation” as retail investors are shifting from bond funds to equity funds, last seen in 2013. Years of high bond flows, such as 2012 and 2017 — and now 2019 — have typically been followed by weak bond fund flows the following year, per analysts (read: S&P 500 ETFs & Stocks to Buy on a Likely Great Rotation).

Also, bonds have seen their share of high thanks to growth worries. iShares 20+ Year Treasury Bond ETF TLT offered 22.1% returns against 17.2% offered by the S&P 500. But this could create a bubble in bonds.

Of late, “money is coming out of fixed income investments.” Fund managers may be looking to “rebalance portfolios and position for 2020 by moving money into selected stock sectors,” per Investopedia. And with this we can see the start of the Great Rotation from fixed income into equities (read: 2 Sectors & Their ETFs Are Hot Picks for 2020).

After a Solid 2019, S&P 500’s 2020 Target Looks More Bullish

The S&P 500 has added 24.8% so far this year, the Dow Jones has gained 20.2% and the Nasdaq shot up 29.5%.

Goldman Sachs’ equity strategist set his official 2020 S&P 500 target at 3,400 earlier this month, up 8.5% from the current close and almost 4 percentage points higher than the average target, per CNBC. The mean strategist target for the S&P 500 is 3,272.

ETF Bets

Against this backdrop, we highlight below a few top-ranked ETFs that could be winners in 2020.


The underlying S&P 500 Index is composed of 500 select stocks, all of which are listed on national stock exchanges and span over 25 separate industry groups. The fund has a Zacks Rank #2 and charges 9 bps in fees.

Financial Select Sector SPDR Fund XLF

The Financial Select Sector Index seeks to provide an effective representation of the financial sector of the S&P 500 Index. The Zacks Rank #2 fund charges 13 bps in fees.

John Hancock Multifactor Consumer Discretionary ETF (JHMC - Free Report)

The underlying John Hancock Dimensional Consumer Discretionary Index comprises securities in the consumer discretionary sector within the United States. The fund charges 40 bps in fees. It has a Zacks Rank #2.

Industrial Select Sector SPDR Fund XLI

The underlying Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. The fund has a Zacks Rank #1 (Strong Buy). It charges 13 bps in fees.

iShares Core S&P U.S. Value ETF IUSV

The underlying S&P 900 Value Index measures the performance of the large and mid-capitalization value sector of the U.S. equity market. The fund charges 4 bps in fees. It has a Zacks Rank #2.

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