The U.S. stock market finished the first quarter down by 4.6% as measured by the Morningstar US Market Index, investment specialist Susan Dziubinski reports in a new blog post.
Heading into the second quarter, the firm’s metrics indicate that stocks are slightly undervalued, she says.
What does that mean for the remainder of 2025?
“In our 2025 Outlook, we expected little price appreciation at the broad market index level,” Morningstar chief U.S. market strategist David Sekera wrote in his second quarter report. “We noted that earnings needed to catch up to valuations, which we didn’t expect to occur until the second half of the year.”
Now with the market trading at a discount, Morningstar analysts see some upside appreciation potential, Sekera said.
Dziubinski described how stock market valuations look through two different lenses. By investment style, small-value stocks are currently the most undervalued stocks, trading 25% below Morningstar’s fair value estimate. Large and mid-cap growth stocks are slightly overvalued.
By sector, utilities, financial services and consumer defensive stocks look the most overvalued heading into the second quarter, while communication services stocks look the most undervalued.
See the gallery for 33 undervalued stocks across 11 sectors, as of April 1.
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