Market bull Jim Paulsen predicts the record US rally will extend into 2020 – but he sees an even better opportunity

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This area of the world could beat US stocks next year

Strategist Jim Paulsen expects 2020 to be another banner year for stocks.

The Leuthold Group's chief investment strategist wouldn't be surprise if the S&P 500 soars another 15% next year, but the long-time bull doubts it will be the best market on the planet.

Paulsen is so optimistic, he believes going global will give investors even bigger profits.

"This will be like the third time we've had re-acceleration in the global recovery just in this expansion alone. We had it in 2012 and 2013. We had it again in 2017 [and] 2018," he told CNBC's "Trading Nation" on Monday. "Every time that's happened, international stocks have beat U.S. stocks, and I think they will again."

Paulsen's 2020 strategy includes under-weighting U.S. stocks and going for the hardest hit markets.

"The emerging markets will be the big winner of 2020," said Paulsen. "They're under-owned in most portfolios. They're unloved because of their underperformance in recent years."

The iShares MSCI Emerging Markets ETF, which is exposed to developing economies including China and India, is down 5% during the past two years.

Paulsen has been firmly in the U.S. bull camp this year. On Aug. 30, he predicted on "Trading Nation" that the major indexes would break out by year's end due to overstated fear in the market. Since then, the S&P 500 is up about 10%.

When stocks were plummeting last December, he characterized Wall Street as too bearish.

His 2019 bullish calls paid off. The S&P 500 has surged 27% this year while the Dow has risen 21%. The tech-heavy Nasdaq has grabbed 33%. On Monday, the major indexes closed at all-time highs.

He expects stocks will push deeper into record territory despite high valuations as long as the 10-year Treasury note yield stays below 3%. According to Paulsen, the rally could persist at these higher valuations for some time.

"We have very low inflation," he noted. "But more important, we have very stable inflation. We have the least volatile consumer price inflation rate over the last 30 years of any time in U.S. history."

His favorite market groups in this environment are small caps, technology, financials and some industrials.

"They [investors] have been piling into bonds and defensive stocks," Paulsen said. "They're going to have to come back to more of the cyclical areas of the stock market."

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Market bull Jim Paulsen predicts the record rally will extend into 2020