Is the Market Overvalued 5/6/21 | Webinar | Liz Laprade

Is the Market Overvalued?

May 6, 2021

After the best 12 months for the S&P 500 in more than 60 years through March 31, 2021, are stocks overvalued? And why has the health care sector failed to participate in robust gains? Research Analyst Liz Laprade looked at current valuations and health care companies in our recent webinar,* Inflation, Inoculation and Infrastructure: Defining the New Normal.

Please enjoy the excerpt below and click here for the full webinar replay to hear more. 

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Liz Laprade:

Is the market overvalued? Yes and no. Parts of the market could be overvalued. If you take it from a price-to-earnings ratio as your proxy for valuation and look at the sectors within the S&P 500, you’ll see sectors like technology or consumer discretionary are trading at premiums to the broader index.

But health care is actually trading below its long-term average at about a 23% discount to the S&P 500. From a bottom-up perspective, health care does look relatively cheap. From a top-down macro perspective on the health care sector, COVID-19 really brought to light the need for funding for the health care industry, and specifically R&D, which would benefit some of the biotech companies.

I was recently listening to a health care fund manager who highlighted the significant increase and funding for private life science companies. Back in 2011, it was about $1 billion worth of funding; last year, it was about $14 billion. This year it’s estimated about $18 billion of funding for a private life science company. That’s a huge tailwind for development in the future for that part of the sector.

Finally, there’s also pent-up demand for elective procedures. Obviously, anything that was not essential last year from a health care perspective was pushed off, and I think that as people are getting vaccinated and life reverts to some semblance of normal, we’re going to see that demand start to be met—that’s another tailwind for the sector.

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Click here for a replay of Inflation, Inoculation and Infrastructure: Defining the New Normal. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.


*Webinar recorded after the market closed on Wednesday, April 28, 2021.

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