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'You need tech, communications, and consumer discretionary to participate' in order to drive the market higher: Strategist

Sameer Samana, Wells Fargo Investment Institute Senior Global Market Strategist, joined Yahoo Finance Live to recap today's market actions and discuss which sector need to participate in the rally in order to drive the market higher.

Video Transcript

- We want to bring back in Sameer Samana, a senior global market strategist at Wells Fargo Investment Institute. So I'm just curious, going off of what Jared was just saying, how would you-- or how are you positioning your portfolio heading into Election Day tomorrow, and then, of course, looking beyond that with coronavirus cases continuing to climb, and at a pretty rapid rate?

SAMEER SAMANA: Sure. So we've taken a pretty balanced approach. So we've been lucky enough to play a lot of the secular trends that were kind of turbocharged by COVID, right? So we've been mostly raw technology. We played consumer discretionary, and communications, and then health care.

And now, what we're doing is opportunistically, we're starting to kind of roll back on that lean. We've recently taken an opportunity to upgrade small cap equities. We think the recovery will broaden out to smaller firms. We've taken the opportunity to upgrade materials. A lot of what's going on there from a sanitizers standpoint, a lot of chemicals, gold prices, copper prices, et cetera is fueling earnings growth for the materials sector.

So we'll keep kind of looking for these little pockets of dislocations where there's opportunities. But for the most part, I think over the next 12 months, we would much rather play kind of a growth-oriented portfolio with a select number of cyclicals and really kind of feed those defenses that we think are probably still a little too expensive.

- We were just talking with a guest in the last hour about the more than $4 trillion of money that has been parked over the past year or so on the side, waiting to come back in. When you talk about alternative ways to put cash to work-- you've just mentioned a few-- but for the average investor, what advice would you give those of us who might be looking at-- I don't want to get burned because tech is expensive, but where else might I be looking?

SAMEER SAMANA: Sure. So those recent upgrades are probably great areas that probably have some room for catch-up. So I would mention again small cap equities, were most unfavorable there for much of the year. They tend to be very credit sensitive, so they really kind of got their clocks cleaned when the credit markets dislocated back in March. So they've got a little bit ways to kind of go back, especially from an earnings recovery standpoint.

And then I would mention materials, and more recently, industrials have started to kind of perk up on our work, and they still have fairly reasonable valuations, a lot better than kind of where tech sits. But we would also say at the same time that in order for this market to continue to grind higher, you do need technology, communications, and consumer discretionary to participate. They're just too large a part of the overall market for them not to at least participate.

- Sameer, going through the earnings that we got today, I want to bring up what we saw in Clorox, because shares closed the day higher, outperformed in its most recent order. And we've seen names like Clorox from the consumer staples sector really outperform during the pandemic. Are you seeing any reason to buy some of these stay-at-home needs that have been having, that had momentum, really, over the last couple of months?

SAMEER SAMANA: You know, that trace probably played out at this point. The tricky part is you can only hoard so much toilet paper and so many wipes on hand before you come to the realization that you've probably got too much. And then it just takes time to kind of work down, you know, that stock that you have on hand.

So at this point, we would say, now's not the time to tilt towards those areas. You would again continue to focus on the areas that will benefit 12 months out when we're probably going to start to be looking at a world kind of post-COVID again, from it being kind of an endemic standpoint. So COVID won't have gone away, but the world will kind of learn to live with it.

- I'm glad you mentioned that because there was a time here in New York City you walk into a store, you couldn't get any of the disinfectants. Now you walk in, it's all they're selling, the wipes and all of that stuff. But there's something else you've pointed out, and that's the-- we're going to get stimulus.

Now, if it's a Biden and a Democratic blue wave, we could see something like $3 trillion, which is what the House Democrats wanted originally. If it's President Trump with Mitch McConnell and the Republicans still controlling the Senate, not so much. What difference does it make if it's $1 trillion or $3 trillion? We're talking about real cash here. So would you see the market get stalled a bit and its climb based on stimulus if it's short of $3 trillion?

SAMEER SAMANA: Well, we would say that as long as you have some form of unified government that sees the need for stimulus, I think the $1 to $3 trillion, the difference between the two, is a little less important. I think that the prospect that could really spook markets would be something along the lines of a Biden presidency with a Republican Senate or a Trump presidency with a Democratic Senate, something along those lines that would lead to some more dysfunction, some more deep divisions that could take Congress's eyes off the ball from a stimulus standpoint. So I think that's the scenario that the market at least needs to be thinking about from the standpoint of it's not very highly likely, but it would really throw us for a little bit of a tailspin.