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Quarter-End Insights

Stock Market Outlook: A Little Too Buoyant?

The market overall looks slightly overvalued, with basic materials and energy the most overheated, and more value in healthcare and financial services.

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  • The Morningstar Global Markets Index has returned 7.6% year to date and 12.1% over the past year.
  • The market-cap-weighted price/fair value estimate ratio for our equity analysts' coverage universe is 1.03.
  • Financial services and healthcare are the most undervalued sectors, both with price/fair value estimate ratios of 0.94. Basic materials and energy are the most overvalued sectors, with price/fair value estimate ratios of 1.28 and 1.22, respectively.

Given that corporate earnings have been weak this year, it is somewhat surprising that equity markets have remained so buoyant. Stock prices have recovered from early 2016 fears regarding China's economy and low oil prices as well as June's reaction to the United Kingdom's vote to leave the European Union. Morningstar's director of economic analysis, Bob Johnson, has started to forecast a slowing of the U.S. economy as a result of such factors as weaker auto demand and the end of the Affordable Care Act boost in healthcare spending. Overall, our analysts find our coverage universe to be slightly overvalued.

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Elizabeth Collins does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.