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Is the Market Overvalued Today?

Our data suggests that valuations have tightened and that stocks are less attractive today than they were two months ago.

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

The stock market has staged a stunning comeback during the past several weeks. And not surprisingly, stocks aren’t as attractively priced as they were in late March.

On March 23, the average stock in our coverage universe traded at a 30% discount to fair value, meaning that stocks looked significantly undervalued.

Over the next two months, the average price/fair value ratio in our coverage universe narrowed by 25 points.

On May 22, the average stock we cover was trading at only a 5% discount to our fair value estimate, suggesting that stocks are now only slightly undervalued.

The energy, consumer cyclical, and basic-materials sectors experienced the largest point increase in fair values over the period.

By late May, the healthcare and technology sectors both appeared to be fairly valued, with several other sectors approaching fair value.

Despite its fair value increase since late March, energy remains the most undervalued sector today. Financial services and industrials also look undervalued.