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Tech rally pushes Nasdaq, S&P 500 to touch new records

ClearBridge Investment Strategy Analyst Josh Jamner joins Yahoo Finance’s Akiko Fujita to discuss the latest market outlook amid increased optimism surrounding U.S.-China trade talks.

Video Transcript

AKIKIO FUJITA: Let's kick things off today with Josh Jamner. He is an investment strategy analyst at ClearBridge and he joins us from Connecticut today. Josh, it's good to have you on today. Let's start by talking about the breadth of this rally. Because we've heard so much from a lot of guests who have said, look, it's really just concentrated in a number of these mega cap stocks. What are you seeing?

JOSH JAMNER: You're absolutely right. And first and foremost, thanks for having me on. But, you're actually right. It's been largely a tech led recovery. However, we're starting to see that broaden out, as you mentioned in the end of the lead in. Dick's Sporting Goods posted pretty strong numbers today. From an economic perspective, we've seen a preponderance of strong data in the month of August. Retail sales beat expectations. Housing starts were quite strong. Just this morning, durable goods surprised to the upside.

Really over the last two or three months, it's been one after another, by and large, upside surprises on the economic front. And we think that we're starting to see this rally broaden out as we move into fall as a result.

AKIKIO FUJITA: How much of that upside on the economic front has already been priced in? We had a guest on yesterday who said, look, it's really just a matter of the economic data finally catching up to where the market expected it to go. The worst case scenario certainly hasn't materialized. The question is how quickly the recovery will come. Is the economic data supporting that? Or is much of that already been priced into the market?

JOSH JAMNER: I don't think it's been priced in. When we've had strong data points, we've seen strong boosts for cyclical stocks. Value has had quite a bit, as we saw last week. And really, when the market's been let down or disappointing, such as the unemployment-- the initial jobless claims, excuse me-- number last week, we've seen kind of a reversion back towards growth.

So you know, if we were talking two, three months ago, I think the common narrative back them was, well, stocks are pricing in too much. Can we really have this strong of a recovery? And here we are two, three months later. The data continues to do really well. And in truth, I don't think it's priced in. And somewhat because, as we were talking about a second ago, it's been mostly tech leading this rally. The kind of consumer stocks, portions of retail, a number of others, industrials for example, aren't doing nearly as well. And I don't think that such a strong recovery is priced in in areas like that.

AKIKIO FUJITA: And having said that, we have that note out from JP Morgan saying that investors are still underweight equities. And that there are signs of overextension confined to individual US stocks. I mean, what are you seeing right now in terms of inflows? And how do you think investors should be positioning themselves, on the back of what you have said is some economic surprises?

JOSH JAMNER: Yeah, there's a tremendous amount of cash on the sideline. Not all of that can necessarily flow into equity markets. But our belief is that the recession is already over, whether it ended in May or June. We believe that it was sort of over by mid-year. I don't think it'll get formally declared to be over for a couple of months, probably closer to year end. But when we look back at history, markets when they're entering the next expansion tend to do quite well. We're still in the early, early, early stages of this economic recovery. And for a long term investor, we still think that there's plenty of upside. And history would suggest markets should continue to rally with often over 50%, if not closer to 100% returns, just during the economic expansion itself. Obviously, there are many people who feel like, you know, maybe I should've bought back in March or April. It took a pretty strong fortitude to do so, obviously. But history would suggest that the rally is not over, just because we're moving out of the recession.

AKIKIO FUJITA: I mean, people are going to hear that and say, how do you declare the recession over when you've got more than 20 million people who are still out of work? You're certainly pointing to the data that is suggesting the recovery is continuing. But what do you think could derail that momentum you're talking about right now? Is it about the stimulus? Is it about some other data that could come through and surprise to the downside?

JOSH JAMNER: There certainly are risks out there. Continuing jobless claims is one of the things we're most closely focused on, excuse me. It's roughly about 15 million Americans that are still out of work on an ongoing basis. At ClearBridge, we track what we call a recession recovery dashboard. It's nine economic indicators that we use. It's a stoplight analogy. Green is good, yellow means you know, maybe take your foot off the gas. Red means hit the brakes.

The overall signal from those nine right now, the overall we add it all up is a green. And we're seeing continued follow through. We had two signals turn more positive last month. So we're getting closer to a month end now. Looking ahead towards next month, I think we'll probably have another signal or two improve. I mentioned earlier, that housing data has been pretty strong. That's one area that we see is ripe for improvement.

But overall, we're seeing more risk to the upside than the downside, from an economic perspective. The momentum, you kn ow, we had a little bit of a pause or a stall in the early part of the summer. We've really re-inflected. And the data's continued to pick back up here as we move into the middle and now coming into the fall.

AKIKIO FUJITA: OK. Josh Jamner, Investment Strategy Analyst at ClearBridge. Great to get some of your takes today. Appreciate your time.

JOSH JAMNER: Thank you.