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Stock Market Outlook: Time to Play Defense

In a market leaning toward the overvalued side, investors must dig deeper to unearth buying opportunities.

Morningstar Equity Analysts 26 March, 2014 | 10:30
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  • Markets have largely recovered from January's correction, and the average valuation of our coverage universe continues to tick up, standing at 104% of fair value going into the second quarter (all market and geographic averages are on a market-capitalization-weighted basis).
  • In a market leaning toward the overvalued side, investors must dig deeper to unearth buying opportunities. However, macro instability has created some buying opportunities, especially in a number of energy and high-quality consumer staples stocks.
  • On a global scale, firms that our analysts cover in Asia Pacific now look to be the most undervalued, reversing the region's most overvalued position at this time last year. Conversely, North America and Europe look to be the most overvalued.


Macro Instability Made for a Rocky First Quarter

Markets offered a bumpy ride during the first quarter and, with the S&P 500 up less than 1% year to date, investors aren't much better off than when we started 2014. Unrest has resurfaced in Turkey, and the crisis in Ukraine has brought uneasy relations between Russia and the Western allies to a head. Although both these markets are a drop in the global macroeconomic bucket, the turmoil has sparked wider concern regarding slowing growth throughout the emerging markets, which have proven to be a key source of growth for large multinationals.

In addition to macro instability, markets face other uncertainties. The U.S. Federal Reserve has been scaling back its asset purchase program, stemming the flow of free money that had previously lubricated markets. And we have yet to see the full fallout of how the severe weather's impact on the consumer will affect corporate earnings.

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About Author

Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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