You’ve heard of the smart money? The bears of the past year are the dumb money. Despite the growling of the pessimists, the S&P 500 is on track for its best year since 2013.

If you had remained bullish this year but prudently rotated toward defensive sectors, you’d be doing even better than the broader market. In a minute, I’ll highlight a defensive sector that’s poised to shine in 2020. But first, let’s do the numbers.

The three main U.S. stock market indices ended essentially flat Friday. Regardless, the S&P 500 eked out its fifth-straight weekly gain, for its 35th record high this year. The Dow Jones Industrial Average also closed with a small gain, for its 22nd record high of 2019. The technology-intensive NASDAQ ended with a modest loss, snapping the composite’s 11-day winning streak.

Wall Street climbed a wall of worry in 2019, as a succession of fears didn’t materialize. Investors continually shrugged off a host of threats, from tariffs to recession indicators, as economic growth and corporate earnings showed unexpected resiliency.

The situation looked a lot bleaker a year ago. When stocks corrected nearly 20% in the fourth quarter of 2018, analysts were writing the epitaph of the bull market. But since then, stocks have posted their best year in more than half a decade. Since 2013, the S&P 500 has set 271 all-time highs.

Even more remarkably, volatility remained generally low this year, with the S&P 500 experiencing only two minor selloffs. For context, corrections in the stock market (a decline of 10% or more) happen on average about once a year.

In June, the U.S. economic expansion surpassed in length the one in the 1990s to become the longest on record. The consensus forecast is for U.S. gross domestic product (GDP) growth in 2019 to come in at 2.3%, compared to 2.9% in 2018. This year’s GDP growth is slower but still respectable, especially when you consider that it’s roughly the average over the past decade.

A major pillar of the bull market has been robust employment numbers. The U.S. economy added about 2 million jobs in 2019, pushing the headline unemployment rate down to 3.5%, the lowest level in 50 years. At the same time, wages and home prices have been rising. The Federal Reserve took a dovish pivot in 2019, lowering rates three times.

We had a big scare with the inverted yield earlier this year, but that proved just another brick in the wall of worry for investors to climb.

U.S. yield curves inverted in March, as 10-year rates slipped below three-month rates for the first time since 2007. This red flag usually presages a recession, but not always. Sure enough, positive economic data came along to assuage recession fears and the yield curve “un-inverted.”

These positive trends have bolstered consumer confidence and put shoppers in a buying mood, as we saw this holiday season. Retail spending during the all-important November-December period has broken records.

The week ahead…

There are only two days left in 2019. However, the stock market doesn’t suddenly reset just because of an arbitrary date on the calendar.

In the week ahead, economic reports are scheduled for release that will set the tone for the beginning of 2020 (see table).

We’re beginning the new year in solid shape, but curb your expectations. Given excessive valuations and mounting global risks, you should expect stock market returns in 2020 that are smaller than those in 2019. The consensus among analysts is for stocks to post gains of 10% or less in the coming year.

For starters, the global economy will start the new year on a downward trajectory. Global GDP growth slowed to about 3% in 2019, the worst pace in 10 years.

Geopolitical and trade tensions kept gains in check in 2019 and these headwinds will only get worse in 2020.

According to the International Monetary Fund (IMF), the global economy has shifted from a position where 75% of the world’s economies were experiencing upswings in 2018 to one in which 90% are currently suffering slowdowns. The IMF cites U.S trade policy as the main culprit for the synchronized slowdown.

At the same time, strife is worsening in places such as the Middle East and Hong Kong. By launching new missiles, North Korea thumbs its nose at the West. With the advent of its hypersonic weapons this year, Russia has initiated a new arms race.

The Sino-American trade war seems to have eased but costly tariffs remain in place. A grand trade bargain between the U.S. and China is unlikely before the November presidential election.

We’ve also reached the limits of monetary accommodation. Central banks in Europe and Japan have pegged short-term policy rates below zero. The Fed has indicated that it will stand pat on rates in the foreseeable future. And remember, rates can’t stay low forever. They’ll eventually start rising again, especially as the massive U.S federal deficit takes its toll.

Moves to make now…

The aforementioned risks call for caution, not bearishness. Conditions remain in place for further market gains in 2020.

In the coming year, focus on “breakthrough” sectors that stand the best chances of beating the modest gains expected of the S&P 500. One such sector is marijuana.

The investment opportunities in cannabusiness will accelerate in 2020, as a greater number of states jump onto the legalization bandwagon. Marijuana biotechs on the verge of drug treatment breakthroughs are particularly promising.

Read This Story: The Race For “Cannabis 2.0” Just Got Faster

For 2020, I also recommend value plays among smaller stocks in defensive sectors.

The champ among asset classes has been U.S.-based large-capitalization stocks, which racked up total returns of 32% in 2019 and 257% during the past decade.

However, large-caps now sport unsustainable valuations, while their earnings growth is slowing. Utilities stocks are an alternative that can provide growth, income and safety. Click here for our list of the best utilities stocks.

The bears proved to be chumps in 2019. But by nearly every yardstick, valuations are excessive. And in the wild election climate of 2020, almost anything can happen.

You should gravitate toward stocks that are worth buying, regardless of who wins the White House. Quality stocks in the utilities and cannabis sectors are good places to start. I’ll look at other promising sectors, in future issues.

Comments or questions? I’m here to help: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily and Utility Forecaster. He also writes Marijuana Investing Daily.