Howard Marks Says We’re in a Risk-Tolerant Market



Howard Marks on market risk

In the previous part of this series, we saw that Howard Marks, billionaire value investor and founder of Oaktree Capital Management, is concerned about higher asset prices and lower prospective returns. He also warned investors to be cautious on the market (SPY) (QQQ).

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Bond yields

Bond yields are at a historic lower level. Emerging market (EEM) (VWO) bonds are yielding lower than high-yield bonds. Lower yield across major countries is a risk to the market.

The equity market is at an elevated level. Optimism about the Trump administration has mainly driven market movement in the past months. Now, strong earnings growth is driving market movement. Marks also said that the PE (price-to-earnings) ratio of the equity market is at a higher level. Presently, the S&P 500 index (SPY) is trading at a trailing PE multiple of 21.6x. The Dow Jones Industrial Average (DIA) and the Nasdaq Composite Index are trading at trailing PE multiples of 19.98x and 23.03x, respectively.

According to Marks, all these factors are suggesting that we’re in a risk-tolerant market. Billionaire investor Warren Buffett’s strategy says that when people are greedy, we should be afraid, and vice versa. Marks said that in the present scenario, people are looking greedy, and that for small prospective returns, they’re taking higher risks in the market.

In the next part of this series, we’ll see what Marks thinks about FANG (Facebook, Amazon, Netflix, and Google) stocks.


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