Our flagship investment advisory is Personal Finance, which has generated profits for its readers for more than 42 years, in bull and bear markets. PF covers the waterfront of investments, with a variety of advice that suits investors of all types.

The chief investment strategist of the publication is Jim Pearce [pictured here], who began his career as a stockbroker in 1983.

Over the years, Jim has managed client investment portfolios for major banks, brokerage firms and investment advisors.

Jim has a BA in Business Management from The College of William & Mary, and a CFP from the College for Financial Planning.

I’m the managing editor of PF and as such, I work closely with Jim on a daily basis and I’ve come to respect Jim’s integrity and insights.

To get a road map for the year ahead, I chatted with Jim for this week’s Big Interview.

Which sectors do you think will perform the best this year?

I am expecting a reversion to the mean this year for the overall stock market, in which case the sectors that performed worst last year should perform best this year, and vice versa.

The bottom three sectors in 2019 were energy (+11.8%), health care (+20.8%), and materials (+24.6%). I expect all three of them to be in the top half of sector performance in 2020.

Which sectors will perform the worst?

Conversely, the top three performing sectors last year were tech (+50.3%), telecoms (+32.7%), and financials (+32.1%), and I expect all three of them to end up in the bottom half this year.

There is nothing inherently wrong with most of these stocks, but their earnings multiples have gotten too far ahead of their ability to generate profits this year.

The energy sector took a beating in 2019. As the new year gets underway, do you see compelling value in the oil and gas industry?

Yes, I do. Now that Saudi Arabia has completed the initial public offering for Aramco, it will exert pressure to drive the price of oil above $70 a barrel.

The Saudis have stated publicly that they want a $2 trillion valuation for Aramco, and the only way for that to happen is for oil to get up to $70 a barrel. Recent events in Iran and Iraq provide a convenient excuse for OPEC to cut production.

The U.S.-Iran crisis seems to have abated, but it could flare up again at any time. Other than the Middle East, which is never at ease, is there a geopolitical threat that worries you right now that maybe Wall Street is overlooking?

Political instability in Latin America has reached an inflection point that could result in a temporary collapse of the financial markets in Argentina, Brazil, and Venezuela.

Combined with tensions in the Middle East, the oil markets could become extremely volatile later this year. By the way, that could also carry over into precious metals in which case gold, silver, and copper prices could also escalate.

Investors are optimistic that the “phase one” trade deal marks a winding down of the Sino-American trade war. Is the deal really a meaningful truce or just a lot of window dressing?

The phase one deal is a compromise designed to buy time so both parties can reevaluate their respective positions. China agreed to purchase an additional $200 billion of U.S.-made goods over the next two years, which is a fairly modest increase over the $500 billion it imported from the U.S. in 2017.

Read This Story: When Rhetoric Collides with Reality

An extra $100 billion per year of imports is better than nothing, but amounts to less than 1% of China’s total economic output.

Delineate for us the asset allocation percentages that will optimize gains and minimize losses under today’s investment conditions.

The current asset allocation model for Personal Finance is 50% stocks, 25% inflation hedges, 15% cash, and 10% bonds. I like that balance since the biggest long-term threat to the stock market is inflation brought on by the rapidly expanding federal deficit.

Although inflation as measured by the consumer price index remains low at a 2.3% annual growth rate (as of December), that is nearly 50% higher than where it was a year ago. Inflation is starting to creep back into the economy, which will gradually push interest rates higher and drive down bond prices.

What investment development surprised you the most in 2019?

The stock market’s strong finish to last year surprised me the most since fourth quarter earnings for the S&P 500 are expected to come in at -1.3%. And that is after three consecutive quarters of year-over-year negative earnings growth for the index.

On a per share basis, earnings for all of 2019 are estimated to increase by less than 1%. If a lot of companies hadn’t bought back their own stock last year, per share earnings for the index would also be negative.

The S&P 500 racked up a stellar gain in 2019. What sort of gain do you expect in 2020?

As I mentioned earlier, I’m expecting reversion to the mean this year so I think the S&P 500 will deliver a return in the 0%–10% range in 2020. I’m also expecting increasing volatility during the second half of the year as the general election in November comes into view.

For that reason, I would not be surprised to see a correction of at least 10% during the third quarter after Q2 earnings have been released. The further we get into this year, the more volatile the stock market will become, so don’t be lulled into a false sense of security!

Editor’s Note: As you can see from the above interview, Jim Pearce is a source of valuable investment acumen. But he’s not the only expert on our staff who can help you make money. Consider our colleague Jim Fink.

Jim Fink is chief investment strategist of Options for Income, Velocity Trader, and Jim Fink’s Inner Circle.

Over the past 50 months, Jim’s trades have racked up a “win rate” of 84.68%. That’s unheard of for most investors, in any asset class.

In fact, Marketocracy, a company that audits the performance of top investors, says that “a winning percentage of 66% would be excellent and would rank among our best investors.” Jim’s win rate is well above that figure of excellence.

Want to learn the details of Jim Fink’s next trades? Click here now.