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Quarter-End Insights

Financial Services: Investors Have a Clearer Picture of Sector's Threats

Market overestimated likelihood of a recession; financial-services stocks trading at a premium to our fair values.

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The Morningstar US Financial Services Index has outperformed the Morningstar US Market Index in the fourth quarter, up 9.6% compared with 9.0%, and year to date, up 33% compared with 31% (Exhibit 1) as of Dec. 31. The median North America-based financial-services stock trades at about a 2% premium to its fair value estimate, so we consider the North American financial sector slightly overvalued. This is in contrast to a year ago, when many financial-services stocks were undervalued by more than 15%.

Financials have outperformed as headwinds lessen. - source: Morningstar

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

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