Stock Market is High: Time to Stop Buying Stocks?

The stock market is trading near its all-time high. Morningstar revealed that of the 682 U.S. stocks that its equity analysts cover, “only 5(!) have 5 stars, while 83 receive a single star.”

For those who are not familiar with Morningstar’s star system, 5 stars represent super undervalued while 1 star represents super overvalued. 

The Volatility Index, the “Fear Gauge” or “Fear Index” is a 30-day forward-looking measure of the volatility of the market. The lower the VIX is at, the less fear or more complacent the market is and vice versa. The Volatility Index also suggests there’s little fear in the stock market right now. 

Source: Stockcharts – Volatility Index

Although Morningstar covers less than 20% of the stocks on the U.S. market, its coverage includes many prominent names across different industries.

Should investors stop buying stocks in a high market? As the stock market has ascended to new heights, it has become more difficult to find value, but they do exist if you look for it.

Even though Morningstar only finds 5 stocks to be super cheap, let’s not forget that it also provides 4-star ratings that suggest stocks are undervalued. 

You might like some of the quality wide-moat stocks that Morningstar currently rates as being undervalued. Here is a good mix of stocks from the list:

  • Enbridge (TSX:ENB)(NYSE:ENB) that yields 7%, 
  • Gilead Sciences (NASDAQ:GILD) with a 4.4% yield, 
  • Lockheed Martin (NYSE:LMT) with a 2.7% yield, 
  • Merck (NYSE:MRK) with a 3.5% yield, 
  • Philip Morris (NYSE:PM) that yields 5%, and
  • ServiceNow (NYSE:NOW) that pays no dividend

Should you stop buying stocks?

Although the stock market is high, underlying businesses of stocks can continue to deliver good performance. 

Investors should tread carefully and determine if today’s higher valuations (compared to last year during the pandemic) still lead to satisfactory returns. 

If you can get satisfactory returns from making new investments today and you’re able to stomach the downside risk, then, you can go ahead and continue to invest new capital. 

If you’re already happy with your current stock allocations and perhaps a little uncomfortable with the all-time-high stock market, then consider building up a bigger cash position and wait for better bargains. In the meantime, update your wishlist and the stocks’ buy price target ranges.

Share Your Thoughts

  • What stocks have you bought recently?
  • Which stocks are you thinking of buying now?

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we own shares of LMT.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha

  • Access my portfolio of high-quality U.S. and Canadian dividend stocks.
  • Real-time updates of when I buy or sell from this portfolio.
  • Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.
Learn More