Howard Marks on Today’s Market: Early-Stage Bubble and a Defensive Playbook
Global asset markets have remained strong despite rich valuations.
Howard Marks of Oaktree calls this an “early stage of a bubble,” warning that investors have slipped into excessive optimism.
In this piece, we summarize the equity and bond markets using a four-stage analytical framework based on his key remarks.
🎯 Key Takeaways
✅ Early signs of overheating, reminiscent of the 1997 dot-com setup
✅ Use bonds (credit) as a defensive tool
📌 Asset Price Strength and Investor Psychology
Marks assesses that stocks are trading above fundamentals.
He points out that the absence of a severe correction for 16 years has led investors to mistakenly believe that "current conditions will continue."
Such optimism is characteristic of the early stage of a bubble; even if a sharp correction is not imminent, it raises the probability of overheating.
📌 Comparing with the 1997 Dot-Com Bubble
Today’s market looks similar to the early phase of the dot-com bubble in 1997.
At that time, expectations for tech were high, but optimism rather than intrinsic value drove the market.
Despite Alan Greenspan’s warning about “irrational exuberance,” the market continued to rise for another 2–3 years.
Marks stresses again that “the froth is in its early stage and does not imply an immediate collapse.”
📌 Valuations: Tech Leaders vs. the Average Company
Many investors see the “Magnificent Seven” as the center of the overvaluation, but Marks offers another view.
Amazon and Alphabet still possess strong competitive advantages; even if valuations are high, their quality provides some justification.
He argues that it is more dangerous that even average companies are now being assigned elevated valuations.
📌 Defensive Investing through Bonds
Marks proposes bonds as a defensive alternative in the current phase.
Investment-grade credit spreads are the tightest since 1998, yet bonds still deliver contractual, fixed returns that offer stability.
He explains that investors can expect yields in the mid-6% range over the next decade, which could be more attractive than overpriced equities.
📌 The U.S. and the Global Investment Environment
The United States is still considered the world’s best investment destination.
Innovation, free markets, rule of law, and growth remain strong, though it is less compelling than in the past.
Some investors may look at undervalued markets outside the U.S., which can be compared to “buying a less-premium car at a bargain.”
Still, Marks emphasizes that the U.S. remains the top priority for investors.
❓ Frequently Asked Questions
A: The broader overvaluation of average companies is more concerning than the concentration in a few mega-cap tech names.
In conclusion, while the market appears overvalued, there are no clear signs of an immediate correction.
Investors should balance equities and bonds to build a more defensive portfolio.
👉 This week’s checkpoints: U.S. rate policy; credit-spread trends
