Our Outlook for the Stock Market

QUARTERLY OUTLOOK: The market is still reasonably close to fair value but we see some potentially deep shifts under the surface

Heather Brilliant, CFA 27 June, 2013 | 9:21AM
  • Although the market continued to rise in the second quarter, stocks are now trading at 94% of fair value, a small improvement from the 97% we saw last quarter, based on stocks under Morningstar coverage using a market-capitalisation-weighted average.
  • The risk/reward ratio does not favour bond investors, with credit spreads tight and the potential for higher rates looming.
  • We think the outlook for equity markets is reasonably good over a longer time horizon, given pockets of undervaluation, an overall market valuation that is not too demanding, and our expectation that the bond market will correct, sending more assets towards equities. We expect higher volatility in the short term, however.

 

The market is still reasonably close to fair value, the United States is still the most overvalued market, and we still see the cheapest valuations in the energy and basic materials sectors.

When we look at our valuation data on stocks, which is based entirely on our bottom-up views of each company we cover, not much has changed: The market is still reasonably close to fair value, the United States is still the most overvalued market, and we still see the cheapest valuations in the energy and basic materials sectors.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Devon Energy Corp9.95 USD1.95

About Author

Heather Brilliant, CFA  Heather Brilliant, CFA, is the vice president of Global Equity and Credit Research at Morningstar.

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