Quarter-End Insights

Stock Market Outlook: Scarce Opportunities, but Pockets of Value Remain

Daniel Rohr, CFA

The Morningstar Global Markets Index climbed 11% in the first quarter to March 25, recovering nearly all the ground lost in the fourth quarter of 2018. From a bottom-up perspective, global equities are now only slightly undervalued. The median stock across our 1,500-plus coverage now trades 4% below our fair value estimate compared with a 14% discount toward the end of 2018. Not surprisingly, we also see fewer compelling investment opportunities, with the number of 5-star stocks down by half since year-end.

  • The growing scarcity of strong buys is particularly evident in technology, following the sector's 16% year-to-date gain. As of March 25, no technology sector stocks carry our 5-star rating.
  • Opportunities are comparably abundant in technology's sister sector, communications services. Europe is a particularly attractive hunting ground for value in this sector.
  • Financial services ranks among the most undervalued sectors. Valuations are especially attractive in banking. The median bank trades at roughly 15% below our fair value estimate, with discounts generally greater outside the United States.

 

Daniel Rohr, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.