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Quarter-End Insights

Our Outlook for the Market

Regional banks, 'sin' stocks, and an energy major are worth a look amid a market that's relatively fully valued.

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  • The market looks generally fully valued, though our energy team's recently increased assumptions regarding long-term future oil prices make the energy sector seem slightly undervalued. This undervaluation is affected by the huge market capitalization of ExxonMobil, which is trading at a fairly significant discount to its fair value estimate. 
  • Reductions of political tensions in the Middle East look to help push oil prices to levels slightly lower than those seen in the spring. This, in turn, will have a positive effect on U.S. consumers, who will be able to use the money they save at the pump on retail spending.
  • The European debt and fiscal crisis is likely to drag on, providing headline risk for European and U.S. banking sectors. These issues will have a greater effect upon U.S. money center banks than regional ones; regional banks may be helped by an increase in real estate prices, which our industrials team is predicting.

Erik Kobayashi-Solomon does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.