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Quarter-End Insights

Our Outlook for the Market

Is it a good time to buy stocks?

Time to buy? The answer is yes, according to our bottom-up analysis of the U.S. stock market. Our equity analysts estimate fair values on 2,000 stocks, which allows us to roll those valuations up into marketwide and sectorwide opinions. As of Dec. 10, we think the S&P 500 is about 8% undervalued, which translates into a 13% expected long-term return. (To arrive at that return, we assume that market prices migrate to our fair value estimates over a three-year stretch.)

Slicing the market by sector, most areas are cheaper now than three months ago, in our opinion. In nine out of our 12 sectors, the median price/fair-value ratio is less than 1.0. We see the largest discounts in consumer (retail stocks in particular look cheap to us), financials, media, and hardware (where semiconductor stocks are cheap again). During the past quarter, we also raised our fair value estimates for a host of energy companies based on a more-bullish long-term oil forecast. The median energy stock we cover is now 6% undervalued.