Stock Market Forecast: How AI Identifies Winning SP500 Sectors In Coronavirus Times

motek 1This stock market forecast article was written by Chloe Peng, Analyst at I Know First. Master of Science of Finance candidate at Brandeis University.


  • Automotive, airlines, energy companies are taking the biggest hit from Covid-19 crisis, while healthcare and online streaming companies benefit from the outbreak. It’s not easy to do stock market forecast under the current situation.
  • The most important thing for investors is to accurately identify opportunities and risks and use sector rotation to optimize portfolio.
  • I Know First’s well-trained Artificial intelligence is crucial in finding the next winning sector before human analysts.

The Coronavirus Is Still Hurting The Financial Market

We have seen the worst month for the stock market since the financial crisis in 2008. The market halted 4 times in March, leading to a chaotic and painful emotion of investors. The US stock market plunged from the all-time high into a bear market since February. As shown in the following graph, though the market is bouncing back slowly, it may still take a long time to reach the highest point in February.

Stock Market Forecast - indexes
(Source: Yahoo Finance)

Although the market hasn’t yet surpassed the major meltdown, it’s safe to say that everyone is going through a hard time; companies are going bankrupt, stores are closed, people are losing their jobs and the government is uncertain about reopening. However, while hoping for the best, the important thing for investors is to identify the opportunities and avoid risks to make profit.

Sectors Perform Differently Under The Crisis

Among all the industries in S&P 500 index, the energy industry plunged further from its high than it did during the great recession of 2007 to 2009. Thanks to the oil price war this spring between Russia and Saudi Arabia, the WTI crude oil price dropped from around 60 to 12 from January to April. People won’t be too surprised to see low oil prices when they go out to fill gas for their cars after the reopening. Moreover, the demand for oil and gas narrows significantly, cutting the revenue even more.

Stock Market Forecast - p/e ratio levels
(Source: Bloomberg, Yardeni Research)

As shown in the graph above, some indexes and industries are hitting all-time lows since the 2 major financial crises. Automobiles, banks, insurance, transportation companies are hardly surviving under the current situation where people are all staying at home to flatten the spread curve and hope to stop the virus. Dow Jones suffers the most because of its composition, mainly consists of manufacturing, airline, transportation and oil and gas companies.

Let’s see the coronavirus index impact index by industry and dimension – minor (1) to severe (5) in 2020:

affected sectors
(Source: Statista)

Although the above industries can be seriously affected, there are companies managed to win the competitive edge even under the current situation. For example, Amazon’s remote deliveries helped both customers under quarantine and the companies itself. This crisis turns out to be a touchstone of how strong the company can be.

Also, we have heard the bad news of bankruptcy of J Crew and JC penny, the Canadian e-commerce company Shopify managed to stand out among peers and we are confident with its performance. The company’s stock saw strong growth from coronavirus lockdowns increasing e-commerce traffic amid decreased brick-and-mortar retail sales.

For sectors, there are also ones serving as rising stars.

Stock Market Forecast: Healthcare Sector

The healthcare sector is at the epicenter of this unprecedented global pandemic challenge, and the private sector has risen to the occasion, by offering to the government all the support it needs, be it testing support, preparing isolation beds for the treatment of Covid-19 positive patients or deploying equipment and staff in identified nodal hospitals. We can conclude from the following chart that it has outperformed the broad equity market during the coronavirus crisis as investors reward companies using technology or advanced research to address COVID-19.

Stock Market Forecast - healthcare
(Source: Bloomberg)

Stock Market Forecast: Entertainment Sector

Online Streaming


Online streaming companies are facing much more opportunities because of the growing demand for new shows. The shelter-in-place orders across America, combined with the loss of live sports, could accelerate the adoption of streaming services that Netflix pioneered. Early returns showed that paid subscriptions for streaming TV and videos-on-demand jumped 32% the week ended March 16.

Netflix is especially immune from the outbreak and it may have edged on competition. While its many rivals face production delays, Netflix has years of original content on its service and more shows already in the can.

The growth in subscribers base and the positive growth potential give investors much confidence and boosted its stock price as it has outgrown the market since this February.

Stock Market Forecast - netflix
(Source: Capital IQ)

Online Gaming

Gaming companies has been doing very well since many countries are going through the Lock-down. It’s intuitive that people turn to computer games for help under quarantine in order to kill time. As a result, online entertainment and gaming companies are seeing COVID-19 surges in revenue.

For example, Activision Blizzard has released its 2020 first quarter results, and while the figures might be down on the same period of 2019, outlook is considerably better than the forecasts provided by the company on February 6.

(Source: Yahoo Finance)

Total revenues for the three months ending March 31 were $1.79 billion, down 2.1% year-on-year, but 9% up on the guidance which was offered to investors in February. This guidance was offered before the full impact of COVID-19 was comprehendible, so it understandable that estimates were off. I’m very confident with the stock, just like our bullish suggestion for AVTI.

Elsewhere, Electronic Arts has also released financial statements for the period ending March 31. Total revenues for the three months increased 14.4%, 3% higher than what was forecast in January while net income was up 5% on the guidance offered. Digital revenues now account for 78% of the total, a transformation which has been taking place over the last few years.

These are two examples of gaming companies who have benefitted from societal lockdown protocols, but there are numerous others including Microsoft with Xbox and its cloud gaming platform Project xCloud. We have also made bullish forecast for Microsoft.

Artificial Intelligence Application in Sector Rotation And Stock Market Forecast

People have been using artificial intelligence to process data and generate information for a long time. Companies use AI to identify customer needs and enhance experience. Under the current coronavirus crisis, AI plays an even more significant role in the society. It can’t stop the coronavirus of course, but it can help in monitoring the outbreaks and come up ways to control the spread and save lives. We appreciate the work done through AI, and have long realized that it can be used in identifying the winning sectors in the new coronavirus times.

artificial intlligence

In its essence, pure and simple, the Sector Rotation strategy is based on the idea that in any given time period, some sectors in any given economy perform better than others, investment-wise, growing higher and generating better returns. The next logical step from this point, of course, is to invest in the top performers and try to avoid investing in those lagging behind. Then, you decide the fund allocation of the sectors in your portfolio and pick out the individual stocks in the sectors based on predictions as accurate as possible. Then you make sure you re-balance it every now and then to make sure your funds are allocated in line with the aforementioned idea; in other words, you want to keep your money is with those showing the strongest performance.

Thankfully, in our day and age, AI is there to solve such problems for us. The technology is amazingly good with all that involves complex statistical inferencing.

I Know First’s AI to Power Sector Rotation

As discussed in the previous section, sector rotation requires collection and process of massive data to produce useful information. As a fintech company, I Know First knows much more than others about the power of AI. The proprietary AI developed and trained on a historical dataset covering 15 years of trading by I Know First can model and predict the price dynamics for more than 10,000 financial instruments for time horizons ranging from 3 to 365 days. The technology can be used in the investment steps discussed previously and save us much time and effort.  For example, I Know First has been monitoring Netflix and have made bullish forecasts on it.

The idea of sector rotation is excellent, but only when we are able to predict the next winning sector before any human analyst will we be able to benefit from the strategy. Luckily, I Know First and its well-developed AI are here to help. During the years, we have been consistently predicting the market with high precision. For instance, we successfully predicted the performance of big tech stocks in the past year with an accuracy rate of up to 84%.

With I Know First forecasts available for a wide range of time horizons, we can react quickly to the next winning sector. And the predictive AI would be more efficient when working with longer periods, because there is more of a seasonal pattern to work with. Or, alternatively, we could work out a benchmark that would be based on the moving average, as suggested earlier, or on the changes in the forecasts themselves.

sector prediction


Although the coronavirus is hurting the market as a whole, we did observe that some sectors are outperforming others for example healthcare sector and online streaming sector. It’s absolutely wise to seize the opportunities by identifying the next rising sector with artificial intelligence and use the sector rotation strategy to benefit from the current situation. I Know First’s powerful artificial intelligence is keen to achieve this before human analysts with high accuracy. We see growing market potential in the nearest future and we suggest to get Coronavirus stock market forecast such that your investment strategy does not lose this momentum.

Here at I Know First, our AI-based stock algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing stock market forecast, as well as a gold predictionscurrency forecast, and, in particular, Apple stock forecast. Today, we are producing daily forecasts for over 10,500 assets. These forecasts generated by our quant trading tool are used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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