Is the Market Overvalued?

After the best 12 months for the S&P 500 in more than 60 years through March 31, 2021, are stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. 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.