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A buildup in savings has allowed a greater buffer which may prevent a double dip scenario: Analyst

Josh Jamner, ClearBridge Investments Investment Strategy Analyst joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

AKIKO FUJITA: Looking at some of the big market movers right now. We're seeing Johnson & Johnson leading the gains on the Dow, up about 2%, as well as Chevron. Boeing facing just light pressure here, after reporting that they're going to be-- that there are more cancellations for their 737 MAX jets as they prepare to return to the skies.

Let's bring in Josh Jamner, he is ClearBridge Investment's Investment Strategy Analyst. Josh, just give me the lay of the land right now. How you're viewing some of the market moves as we look to the last several weeks of the year. On the one hand, we've got Washington still in limbo, nothing really changed over the last few months. And, on the other hand, we've also got more and more restrictions coming through as we see the spread of this virus.

JOSH JAMNER: Yeah, we think that the economy is continuing to recover. We're certainly think that we're going through a little bit of a softer patch in terms of the pace of that recovery. But when we take a step back, we use what we call our ClearBridge Recovery Dashboard. It's nine economic and financial market indicators that we use to keep tabs on the health of the economy coming out of a recession.

We think the recession ended all the way back May or June, kind of middle of this year. And there's really, actually, been no change over the last three or four months. It's been continued slow but steady improvement. As you said, we've been waiting on DC for a stimulus bill for quite some time now.

It's not an even recovery. There's been some fits and starts, good and bad. As you just said, there's a little bit tighter restrictions with relation to coronavirus over the last couple of weeks. But taking a step back, things like housing continues to be really strong. NHAB, a home-building sentiment index, all time highs last month. Housing starts continue to look pretty healthy. So while we're not off to the races, we continue to see steady progress forward, and hopefully that'll continue as we move into 2021.

ZACK GUZMAN: Josh, this week we're going to get a couple of big IPOs, here. First, with DoorDash then Airbnb. But when we look at the valuations there, I think, some larger market trends that might be able to be teased out when we look at the valuations there, since Airbnb kind of saw a V-shaped move in their own valuations.

And I wonder how much of that, in your mind, is tied to expansion, when we think about how people are valuing these companies that survived-- not only survived-- but thrived in the post pandemic world as we started to reopen. What does that, maybe, say about the risk/reward for some of these more cyclical stocks that, maybe, had been beaten down when you look at cruises, airlines. What's your thinking on that?

JOSH JAMNER: So, I think, there's a couple of dynamics at play. The first is when you think about the market as a whole. Valuations are going to be higher just given what's in the market today. As you mentioned, cyclical stocks have been beaten down. They're contributing less earnings. They're also a smaller share. They're actually at one of their smaller shares, the overall benchmark, in about 100 years. They tend to trade at cheaper valuations.

On the other side, you've got the defensives. You've got some of the more growth type of companies that you were just mentioning. They're at their largest percentage of the benchmark going back 50, 75, almost 100 years. And that just a natural-- natural outcome of that.

You've got more high PE stocks in the benchmark. Fewer low PE stocks in the benchmark. Think about energy and financials, they tend to trade below the market. They're at probably 5%, 6% less of a weight. Tech, by contrast, tends to trade expensive. It's about 10% more weight in the benchmark today, and that's just pushing up benchmark valuations, for valuations for the benchmark as a whole.

If you were to kind of neutralize and say, well what is kind of a typical weight? PE on the S&P would be 1 and 1/2, maybe two turns lower today.

AKIKO FUJITA: Josh, I want to get back to what you said earlier about how you believe the recovery is still intact, not a lot has changed, at least in your view, since the summer, and yet, I have to wonder, how much of your portfolio is priced in what's actually been playing out right now with additional restrictions being reimposed?

We've seen the labor market, the recovery on that front, start to stall as well. Is this most recent wave, you think, not too disruptive? Or you think that a lot of these businesses that have already been struggling could still ride out the wave? I'm trying to understand why you think this is still a very strong recovery even in the face of not being able to have controlled the virus? And the vaccine, the expectation here, that it's not really coming to market until the spring, next year, in terms of a larger scale.

JOSH JAMNER: So a couple of things are at play. First, is that consumers have built up a ton of savings. Savings on an aggregate national basis are almost a trillion dollars higher today than they were right before coronavirus hit. If you go back to kind of the end of last year, they're in excess of a trillion dollars higher.

So me, you, everyone out there, whether it was a function of people receiving stimulus checks, government transfer payments, or the inability to spend, or people just deciding to keep a little bit more cash in the bank, whatever the sources were, people have a little bit more of a buffer. And even though we aren't-- doesn't seem likely that we're going to have vaccines tomorrow, hopefully it'll be coming through late first quarter, early second quarter, on a more widespread basis. There's a greater buffer there, because of that build up in savings, that can allow the economy to kind of keep plodding ahead. It might not be spectacular but, I think, it'll prevent us from going into a double dip scenario.

ZACK GUZMAN: Yeah, you're our second guest today that stressed the savings rate, there. Clearly, an important thing for investors to keep their eyes on. Josh Jamner, ClearBridge Investment's Investment Strategy Analyst, appreciate you coming on here to chat that.

JOSH JAMNER: Thank you.