New bull-market: The sectors, the investment philosophy and how this will be supported

authored by
Christos Alonistiotis
Market Insights
5 minutes read

Donald Trump’s incredibly brief hospitalization, due to the coronavirus, has triggered investment optimism. It is known that investors loathe uncertainty. And even more when this uncertainty has to do with the upcoming elections and the instability that might be provoked afterwards, because of the incapability of a Presidential candidate to take part in them.

This week has been another proof that 2020 is a unique year in the markets history and any message that emerges from everything that happens should be analyzed calmly and soberly. According to what I have mentioned from time to time in this report, 2020 will be a year to remember for investors, but also a beginning of a bigger trend, which investors should take advantage of.

Statistics with crucial information
Although so far we have seen many upheavals in global markets, is seems that there are more surprises to come and until 2020 comes to an end, we could encounter difficulties. For instance American elections are approaching. Markets are already moving according to exit polls, but even an unexpected Donald Trump’s victory, would be likely to bring more optimism to the markets. Furthermore, there are developments, as far as vaccines and treatments are concerned that trigger volatility, there is the pandemic in full swing while winter is approaching and there are potential surprises from a macroeconomic and corporate level.

In my opinion, all the above, are not horror scenarios for the markets, but on the contrary they could create opportunities for higher entry levels for investors. October (pre- election years) demonstrates higher volatility, although this year we are likely to have already encountered the worst in the previous week, when VIX climbed to 30 before moving downwards again. This means that there is strong possibility for a very positive last quarter, because since 1928, it is the quarter with the higher average return, sometimes a return of 2,5%.

S&P 500: Average Monthly Return % (1928-2019)

Also, quarters with losses bigger than 15%, are followed by quite a few quarters with successive positive returns. As captured in the following diagram, falls of over 30% signal a new bull market, at the beginning of which profits are massive and after that there take place corrective moves, which range between 15%-20% and are strong entry points. For now leading index Nasdaq is already on this path.

Because of the fact that new highs trigger new highs in the markets and because of Fed’s safety nest for the markets and government’s safety nest for the economy, there is strong evidence that fears of sharp rise of the stocks are not fears of the “market”, but fears of retail investors and some bigger funds that did not manage to catch up with the rally. And this is one more reason, why in the portfolio composition and management there is no room for the “right time”. Because for anyone, who wants to make an investment, there is always the reaction that it is not the “right time”. As a result market is afterwards more and more miles away. In the following graph you can see the movement of S&P 500 and stock ETFs flows. It has been one of the best periods for S&P 500, but retail investors did not follow the wave.

New investment trends and sectors that are expected to support the new bull market
The prevailing trend right now in the markets is green energy and generally investments in assets that have the green/clean energy indication even only in the product title. Major proof comes this year, when investors set aside even S&P 500 for the shake of index’s “green” version mainly through ETFs: ICLN US and QCLN US. The difference in terms of returns since the beginning of the year is chaotic.

In the current decade, inexhaustible liquidity and zero interest rates will trigger rapid growth of sectors, which so far have been in the background. And this is because in the post- pandemic era, some trends have been established and are now regarded as essential, while others evolved more rapidly.

Technology is a central pillar, on which the evolution of these trends will be based. Fitness, nutrition (food processing, production, specific eating habits), energy storage, telemedicine, distance learning, modern banking and payments, digital asset/wealth management, waste management, automatics, robotics, transportations are among the sectors that will lead to a new stock exchange era, as well as a new era for real economy.