After a strong rally pushed stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. into record territory in 2020, are stocks overpriced today? Vice President Steve Johnson and Research Analyst Liz Laprade discussed the valuations in the U.S. and abroad in our recent webinar,* A Tale of Two Recoveries: Will Main Street Catch Up With Wall Street?
Please enjoy the excerpt below and click here for the full webinar replay to hear more.
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Clearly, there are areas where this market is overvalued—a lot of the gains in 2020 were focused in technology. But again, that’s to be expected. With a pandemic, profits are going to be impacted and people are going to put their money into areas that can do well. The stay-at-home names, the internet names, technology. They took their money out of airlines and hotels.
Now, if you look at the overall market, you could say, yes, we’re trading on a price-to-earnings ratio that is a little overheated in certain sectors. But take a look at energy. Even with its rally it had a precipitous decline in 2020. Airlines and (in our DividendA cash payment to investors who own stock in the company. Income portfolio) you talk about aerospace and defense names. Banks have not been great performers either.
But if you think that in the second half of this year the pandemic will be under control, we do get stimulus, we start to get back to normal—we’re going to have a tremendous amount of earnings growth. These energy names and airlines and other areas that didn’t do well—they’re going to have easy comparisons. Meaning their earnings were terrible last year but they’re only going to get better. Whereas, some of the other areas in the market, where comparisons and earnings looked great last year, it’s going to be a little tougher to beat.
It’s going to take some patience because those areas of the market aren’t the shiny object of the moment. Things that hurt when you drop them on your toe—steel, copper, those things play into the rebound—they’re not all household names. But we do think those are areas in the market where people can move funds into.
Liz, you’re going to talk a little bit about your expertise in the international space, so I’ll let you go from there. That’s another area that could be ripe for investing.
We talk about parts of the market that are frothy here in the U.S. But we also need to talk about international; certain parts of the international markets look really attractive. They’ve had a tailwind of a weakening dollar and some countries whose economies have recovered a lot quicker than we have here.
China was up 24% last year. It’s seen strong GDP recovery, and it’s had a good start to this year so far. So, that’s one example. I think while there could be overvaluations here in the U.S., it also means there could be opportunities abroad.
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Click here for a replay of A Tale of Two Recoveries: Will Main Street Catch Up With Wall Street? Please contact us at (800) 492-6868 to learn more about our comprehensive wealth management solutions.
*Webinar recorded after the market closed on Wednesday, January 27, 2021.
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