Morningstar chief US market strategist David Sekera joins Market Domination to discuss fourth quarter investing opportunities and how investors should prepare for the US election ahead.

"Within the small caps (^RUT), I like it really both from an absolute valuation basis as well as a market-relative valuation basis. So when we look at the small-cap sector overall, it trades at about a 15% discount to a composite of our fair values," Sekera tells Yahoo Finance. "But then when I also compare it to our price-to-fair-value metrics for the overall market, while it's gotten a good bounce the past couple of months as we've seen the rotation in the small caps, it's still at some of the lowest levels that we've seen over the past decade."

He also points to value stocks as an opportunity, noting that they trade at around a 3% discount to fair value: "So a better relative value than the market, which actually trades at about a 3% premium to fair value today. So really, if you want to get into verticals, if you cross those two and you go into small cap and value, that's definitely going to be where we see the most undervalued opportunities today."

He notes that the market rotation into small cap stocks started in July. As the Magnificent Seven and other mega-cap tech names have reached sky-high valuations, Sekera believes they are either fully valued or overvalued at this point and expects the small-cap rotation to still have "further to go."

With the presidential election less than one month away, Sekera explains, "We've done a lot of analysis on it, and what we found is depending on what time frames you use, you can really come up with a case for either party being better or worse for the market, better or worse for the economy. And at the end of the day, it's really going to be a lot of exogenous variables out there, both globally as well as in the markets, and where the markets are valued going into the election, that's really going to dictate how the market performs thereafter."

To watch more expert insights and analysis on the latest market action, check out more Market Domination here.

This post was written by Melanie Riehl