In late March, the median stock in Morningstar's coverage was trading 4% above our fair value estimate. In our view, industrials, technology, health care, consumer defensive, and utilities are the most overvalued sectors, with the median stock in each trading between 7% and 11% above our fair value estimates. Only energy looks like a relative bargain, with the median stock trading 9% below our fair value estimate.
Things don't look much better at the level of individual stocks. Only 25 stocks under Morningstar's coverage carry our 5-star rating, and many of these are high-risk mining, energy, and emerging-markets companies.
The S&P 500--at a level of 2,108--carries a Shiller price/earnings ratio of 27.7--higher than 79% of monthly readings since 1989. Such high valuation levels have historically been associated with poor subsequent five-year total returns and an elevated risk of a material drawdown. Proceed with caution. Click to read our full stock market outlook.
More Quarter-End Insights