The S&P 500 has barely budged since our last quarterly update, so the market as a whole still looks fairly valued to slightly overvalued. The median stock in Morningstar’s coverage universe trades right around our fair value estimate.
On a price/earnings basis, the S&P 500's valuation remains rich by historical standards. The index was around 2,120 in late June. That implies price/earnings ratios of 19.2 (using trailing-12-month operating earnings), 27.3 (using a 10-year average of inflation-adjusted earnings--the Shiller P/E), or 18.5 (using trailing peak operating earnings). Those measures have been lower 65%, 76%, and 78% of the time since 1989, respectively. Such high valuation levels could be justified--assuming interest rates stay low and profit margins stay high--but we don't see much room for error in today's stock market. Click to read our full Outlook for the Stock Market.
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