Morningstar Analysis: Is the US Stock Market Overvalued?

Our US counterparts share their view on the US stock market - how the universe as a whole is valued and where the pockets of opportunity lie 18 April, 2017 | 1:04PM
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Is the market cheap or expensive--and what sectors offer the best opportunity today? This is the Market Fair Value update for Saturday, April 15.

The Market Fair Value shows the median price/fair value ratio of all of the individual stocks we cover. In essence, it shows how big of a gap, on average, we see between market prices and our estimate of intrinsic value across the entire market or a specific sector.

Today’s ratio for all rated stocks is 1.04--this indicates that the market is overvalued, but slightly less so than it was a few weeks ago when the ratio hit its 52-week high of 1.05. The lowest it’s been over the last year is 0.95 in June of 2016.

Valuations across sectors are quite uneven. The most overvalued sector is basic materials at 1.16--that's 16% above our estimate of intrinsic value. Metals and mining stocks look especially expensive, propped up by unsustainable Chinese stimulus and supply cuts. However, U.S. housing plays remain among the pockets of opportunity in this otherwise overvalued sector.

The most undervalued sector is real estate at 0.96--that's 4% below our estimate of intrinsic value.

Some of the most attractively priced stocks in the real estate sector are mall owners that we think have been unfairly beaten down over fears about store closures and rising interest rates. Three that look the most attractive today are General Growth Properties, Simon Property Group, and Macerich.

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.

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About Author offers coverage of more than 1,700 stocks, 1,700 mutual funds, and 300 ETFs, plus market news, economic analysis, portfolio-planning insights, and investment commentary.