S&P 500 Overvalued, Mid- and Small-Caps Offer Value
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The S&P 500 is very concentrated in a few stocks and overvalued based on earnings expectations and interest rates. However, mid- and small-cap indexes are undervalued with stronger earnings growth expected.
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Markets show a healthy risk appetite currently, with corporate bond spreads near recent lows. Margin debt levels don't indicate worrying speculation.
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Interest rates and inflation expectations are around long-term averages, indicating economic stability. Markets predict continued moderate growth.
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Assuming continued resilience, the likeliest outcome is for the narrow large-cap rally to broaden to other areas like small-caps, which outperformed recently.
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It's best to focus on undervalued areas with upside, like certain REITs and energy stocks. Market corrections happen but trying to time them usually fails.