Howard Marks: The U.S. stock market is in the "early stages" of a bubble, although the key point for a correction has not yet arrived

Howard Marks, co-founder of Oak Tree Capital, warned that although the key factors triggering a significant market correction have not yet appeared, U.S. stock valuations are already high and show signs of being in the "early stages" of a bubble. "I am certainly not sounding the alarm. The key point is that market prices are indeed very expensive," the renowned distressed debt investor said during a media interview on Wednesday, August 20. Howard believes that relative to historical levels, the valuations of some tech stocks have already raised red flags. One key valuation metric that concerns him is the ratio of the total market capitalization of U.S. listed companies to the U.S. Gross Domestic Product (GDP), also known as the "Buffett Indicator," which is currently at an all-time high. He further analyzed that due to a large number of companies being privatized through acquisitions in recent years, while others have postponed their IPO plans, the actual situation of this metric may be "more concerning" than it appears on the surface. This means that the current valuation pressure in the stock market may be underestimated. The market needs to find reasonable support for the current "inflated valuations." At the same time, Howard pointed out that investors have been 16 years away from experiencing a "real market correction." This forgetfulness of history, combined with high valuations, forms the basis of Howard's cautious attitude. People have become unaccustomed to thinking about market corrections... The possibility of mean reversion is very high. The current market environment reminds Howard of the late 1990s when enthusiasm for tech stocks was high, leading to then-Federal Reserve Chairman Alan Greenspan's famous warning about "irrational exuberance." However, he also noted that after that warning, the market continued to rise for several years before the tech bubble finally burst, suggesting that the current upward trend may still have room to continue. The Buffett Indicator shows that U.S. stocks are "severely overvalued" at a specific value of 217%. Defensive positioning is timely Based on the above judgment, Howard's investment advice is very clear: shift to defense. When asked if the U.S. is still a good place for defensive investments, Marks described it as "a high-priced good car." He explained that although the basic investment environment in the U.S. has "slightly deteriorated," and there are issues with high valuations in the market, it remains the best investment destination globally. In such a "good car," choosing more defensive assets like credit is a more prudent strategy at present