U.S. stock market outlook: A year of contradictions

The best-performing sectors thus far in 2016--utilities, consumer staples, energy and basic materials--all look overvalued to our analysts.

Matthew Coffina 4 July, 2016 | 5:00PM

After a rough start to the year -- the S&P 500 fell more than 11% in the first six weeks of 2016 -- the U.S. market abruptly reversed course. Although the "Brexit" vote caused volatility in recent days, we're now back within a few percent of the all-time high, and our analysts find the average stock in our coverage universe to be trading close to fair value.

The fears that had gripped investors early in the year haven't exactly gone away: Economic growth is still sluggish to nonexistent around the world, corporate earnings are moving in the wrong direction, and valuations remain well above historic norms. However, investors appear to be coalescing around a worldview that's even gained its own endearing acronym: TINA, as in "there is no alternative" to stocks.

Defying previous expectations for multiple Federal Reserve interest-rate increases this year, long-term Treasury bond yields have drifted lower since the beginning of 2016. At first, this was seen as reason for concern. If the Fed isn't in a position to raise rates now--seven years into the recovery and with unemployment at just 4.7%--then there must be something seriously wrong with the U.S. economy.

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About Author

Matthew Coffina

Matthew Coffina  Matt Coffina, CFA, is a portfolio manager for Morningstar’s Investment Management group and editor of Morningstar® StockInvestorSM.

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