MW 'Expensive, but not nutty.' Howard Marks on U.S. stocks and the one thing investors should be doing right now.

By Barbara Kollmeyer

Oaktree co-founder says U.S. investors are 'maybe complacent'

Howard Marks, co-chairman and co-founder of Oaktree Capital, pictured in 2021. The widely respected investor has some fresh thoughts on U.S. stocks and what investors should be doing.

The direction is upward for stocks on Wednesday, driven by some optimism around Fed rate cuts, as investors continue fielding rumblings on the U.S.-China trade front.

Taking a step back is our call of the day from the highly respected co-founder of Oaktree Capital Management, Howard Marks, who says U.S. markets remain an unbeatable place to invest, but some caution is warranted.

"Money wants to be in the United States. It's hard to think of another destination as your capital, which is superior. Other destinations may be cheaper, but I don't think the macro environment is better," he said during a videoconference appearance at the Cathay Asset Management Conference in Taipei on Wednesday.

He described U.S. investors, though, as "happy, relatively carefree, and maybe complacent," he said, adding that "markets in the U.S., but in most places, are dominated by optimism, not pessimism. And when you have optimism ruling the market, then you get high prices relative to value, and that's where we are."

Marks made similar points in an August memo, saying while "Magnificent Seven" stocks don't look overvalued, those for the rest of the S&P 500 SPX was concerning.

He pointed to a JPMorgan chart from late last year that looked at what an investor's annual return on average over the next 10 years would be if they had bought S&P 500 at a given price/earnings ratio. The P/E was 23 at the time, meaning that average return would be 2% to minus 2%, he said.

"In other words, the S&P 500 is expensive, and if past relationships hold, you should not expect much of a return if you buy it when it's 23. And by the way, that was at the end of last year. The S&P has gone up from there and the S&P P/E ratio is now higher," making it "definitely expensive," he added. The forward P/E ratio for the S&P 500 currently sits at 22.7 times, according to FactSet.

However, Marks acknowledged that today's companies, such as the dominant "Magnificent Seven" tech stocks, are "better," as he cited solid products, strong growth, "huge incremental profitability" and dominance in their industries that keeps the competition at bay.

Nodding to worries over an AI stock bubble, he said it remains to be seen whether current equity prices are too high or not high enough for those companies. "My conclusion on the U.S. stock market has been that it is expensive, but not nutty," he said.

With that, Marks offers some advice. "As investors, we sometimes know what's going to happen. We never know when, but if the market is expensive we have to say so and take action and maybe raise our defenses a little bit," he said.

In his August note to investors, the Oaktree co-founder discussed the value of progressively applying his so-called Investment Readiness Conditions, set up to mimic the Pentagon's Defense Readiness Conditions that range from DEFCON 5 to top danger at DEFCON 1. His so-called "Invescons" are as follows:

6. Stop buying5. Reduce aggressive holdings and increase defensive holdings4. Sell off the remaining aggressive holdings3. Trim defensive holdings as well2. Eliminate all holdings1. Go short

"I've been around for 56 years. I've never been certain enough to go to one or two, but you know six, five, four, three make some sense. I think today is reasonable to be at number five," he said.

"I think people who have portfolios and have done well in a bullish, constructive environment with rising optimism, I think maybe it's time to, depending on how you feel about wanting to be conservative, to take some chips off the table and shade your portfolio toward defensiveness."

Marks said investors these days should steady themselves and "participate in the long-run beneficial effects of being an investor and being an investor in the U.S." An investor who can compound their money at 7% a year and before taxes that doubles every ten years, is doing "pretty good," he said.

"The key is not to have things in your portfolio or much in your portfolio that it's so aggressive that a bad time can really thwart your efforts. Steadily making good returns, number one, beats swinging for the fences and number two, produces a much more comfortable way of being," he said.

Read: Wall Street's 'fear gauge' surges to highest level since May. Here's what investors should know.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are trading higher, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y softer. Gold (GC00) has crossed $4,200 for the first time and is set to hit new highs, alongside silver (SI00). The dollar DXY is softer.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6644.31    -1.05%  0.57%   12.97%   14.26% 
   Nasdaq Composite                                                     22,521.70  -1.17%  0.84%   16.63%   22.96% 
   10-year Treasury                                                     4.018      -10.30  -6.70   -55.80   0.00 
   Gold                                                                 4209.1     3.66%   13.93%  59.48%   56.45% 
   Oil                                                                  58.68      -5.81%  -8.27%  -18.35%  -17.01% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Bank of America shares (BAC) are climbing after posting earnings and revenue beats, with Morgan Stanley $(MS)$ results still to come.

Shares of Europe's tech giant ASML $(ASML)$ (NL:ASML) are rising after the chip-equipment maker posted upbeat guidance and better-than-expected orders, but also warned of a China slowdown.

The Empire State manufacturing survey for October is due at 8:30 a.m., with the Fed beige book of economic conditions due at 2 p.m.

Several Fed speakers are on the calendar - Atlanta Fed President Raphael Bostic around noon, followed by Fed governor Stephan Miran at 12:30 p.m. and Fed governor Christopher Waller at 1 p.m.

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-Barbara Kollmeyer

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October 15, 2025 07:00 ET (11:00 GMT)

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