Chart of the Week: US equity market trading at an attractive discount
The latest from our Chief US Market Strategist.
This week’s charts come from Morningstar’s Q2 2026 North America Market Outlook.
The US equity market is trading at a 12% discount
Based on a composite of our intrinsic valuations of the over 700 stocks we cover that trade on US exchanges, as of March 23, 2026, we calculated that the US equity market was trading at a price/fair value estimate of 0.88. This reflects that the market is trading at a 12% discount to our fair value estimates.
By capitalisation, large-cap stocks have become much more attractive following their first-quarter selloff and are now at a 13% discount to our fair value estimate. Mid-cap stocks held their value and are at only a 6% discount. Small-cap stocks remain the most attractive, trading at a 17% discount to our fair value estimate.
Undervalued for a reason
The US equity market is attractively valued at a 12% discount to our valuations and repeatedly shows signs of wanting to move higher whenever steps are taken toward a moderation in the conflict with Iran. However, until there is a public signal from Iran that it is open to negotiations, we think these rallies will be limited.
While the AI investment boom has been a significant tailwind the past two years, much of that optimism is already reflected in prices. To take the next leg up in these stocks, we think investors are looking for better visibility into how AI capital spending translates into new revenue growth and greater efficiency, driving operating margin expansion.
Looking ahead, the first-quarter earnings season begins the week of April 13. If oil prices remain elevated, management teams may issue more conservative guidance to build in a cushion amid rising uncertainty. At the same time, macro conditions are weakening: Growth is slowing, inflation pressures are resurfacing, and interest rates are edging higher. This leaves the Fed cornered, unable to cut rates without fueling inflation or hike them without risking economic slowdown.
Growth stocks are increasingly attractive
A combination of declining prices and increased valuations led the growth sector to an even greater discount to fair value. Our growth index dropped 4%, and nine of the 10 greatest increases in valuation by market capitalisation during the quarter were large-cap growth stocks, including Tesla, Micron, and Nvidia. Similarly, our core index dropped 3%, yet we increased fair value estimates for a wide range of core stocks, including Apple.
Valuation for the value category remained stable as our valuations increased only slightly, outpacing the value index return. Declines across mega-cap stocks skewed the valuation for the large-cap category downward.
