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Quarter-End Insights

Our Outlook for the Stock Market

The environment is right for stock-picking to make a comeback.

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  • We continue to view the market as pretty close to fairly valued, with stocks under Morningstar coverage trading at 92% of fair value in mid-December, using a market-capitalization-weighted average. This is not materially different than last quarter, when our coverage universe was trading at 91% of fair value.
  • Market volatility will be a way of life in 2013, as Europe continues to work on solving its debt problems, China's growth remains closely scrutinized, and the U.S. grows in fits and starts. In this environment, we think stock-picking will make a comeback, and investors focusing on specific stock opportunities will do well given this backdrop.
  • Despite the media's penchant for touting the fiscal cliff as a major crisis, we think it will end up being a non-event. It has to get resolved one way or another, whether politicians finally agree to reach a compromise, or the U.S. is forced into its own austerity. While the latter scenario may bring recession, we think it would result more in buying opportunities than a protracted stock market decline.


Heather Brilliant has a position in the following securities mentioned above: FAF, MSFT. Find out about Morningstar’s editorial policies.