From Morningstar: 2025-06-05 04:29:00

As of May 30, 2025, the US stock market was trading at a 3% discount to fair value, historically close to the midpoint. With higher downside risk potential, investors should exercise caution despite remaining market weight. Previously, a 17% discount prompted an overweight position, later adjusted due to valuation closeness.

Trade negotiations and tariffs pose ongoing risks, with uncertain completion timelines and potential impacts on markets. Economic growth may be distorted by factors like imports and supply disruptions, affecting GDP and earnings. Rising yields, especially if breaching 5%, could prompt market valuation adjustments amid monetary policy uncertainties.

Market volatility may increase over the next quarters, with geopolitical risks adding unpredictability. Positioning recommendations include overweighting value stocks, market-weighting core stocks, and underweighting growth stocks based on valuations. Small-cap stocks are undervalued but may take time for sentiment to shift positively.

Technology and communication services sectors saw notable gains in May, with technology nearing fair value and communication services remaining undervalued. Consumer cyclical sector rose, propelled by Tesla, now back to near fair value. Real estate and energy sectors saw modest gains, while healthcare sector declined, led by losses in certain stocks. Consumer defensive sector remains overvalued, skewed by specific stocks.

In conclusion, investors should navigate potential market turbulence by diversifying positions based on valuation metrics and sector performance. Stay informed on trade negotiations, economic indicators, and monetary policy for a well-rounded investment strategy.



Read more at Morningstar: June 2025 US Stock Market Outlook: Has the Storm…