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a day ago
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One of America's most respected investors says the ‘Magnificent Seven' isn't overvalued — the rest of the market is
Despite a handful of tech stocks contributing to most of the S&P 500's gain this year, esteemed investor Howard Marks doesn't think the 'Magnificent Seven' stocks look overvalued. Instead, he views the rest of the stock market as potentially problematic. Marks is the co-chairman of Oaktree Capital Management, an investment firm with a history of generating returns through deals in distressed credit and equities. He has written a handful of books about investing and gained the respect of investing legend Warren Buffett. Homeowners rush to refinance as mortgage-rate plunge opens window of opportunity I'm a senior who barely survives on $1,300 a month. No way could I live on $1,000. Intel's stock pops. Will Trump come to the rescue with unprecedented government help? In a recent memo, Marks shared his current thoughts on how investors should think about value, and how that relates to the market right now. Value is tied to an asset's fundamentals, he argued, saying it matters over the long run, regardless of what the market is doing at a given moment. Marks pointed to a memo he wrote about the dot-com bubble in January 2000, and in January 2025 he published another note about current valuations, titled 'On Bubble Watch.' Here's how he views the dangers in markets when things become too optimistic or pessimistic: 'When the majority of investors are optimistic, they cause price to rise and potentially exceed value. And when the pessimists reign, they cause price to decline and potentially fall short of value.' Marks notes that the S&P 500 SPX returned 58% over the course of 2023 and 2024, and just over half of those gains came from the 'Magnificent Seven' stocks, which are Apple AAPL, Microsoft MSFT, Alphabet GOOG, Amazon AMZN, Meta Platforms META, Nvidia NVDA and Tesla TSLA. While that was historically unusual, Marks said he didn't think those seven stocks were overvalued, using price-to-earnings as a metric to measure value. 'Because of these companies' greatness, their stocks are highly valued, and there's a popular perception that their elevated valuations are responsible for the S&P 500's unusually high average p/e ratio. The fact is their p/e ratios average out to roughly 33. This is certainly an above-average figure, but I don't find it unreasonable when viewed against what I believe to be the companies' exceptional products, significant market shares, high incremental profit margins and strong competitive moats,' he said. However, when looking at the rest of the S&P 500 companies, Marks saw some valuations that weren't justified. 'Rather, I think it's the average p/e ratio of 22 on the 493 non-Magnificent companies in the index — well above the mid-teens average historical p/e for the S&P 500 — that renders the index's overall valuation so high and possibly worrisome,' he said. You can read more, here, on his views on fundamentals, sentiment, prices, valuations and more. But here's a final nugget: 'The existence of overvaluation can never be proved, and there's no reason to think the conditions discussed above imply there'll be a correction anytime soon. But, taken together, they tell me the stock market has moved from 'elevated' to 'worrisome.'' CoreWeave's lockup is about to expire. What that could mean for the stock. 'I am a senior citizen': My car needs $3,500 for repairs, but only has a trade-in value of $6,000. Do I bother fixing it? Dow ends just shy of record after touching new intraday high, as Buffett gives Wall Street a boost Sign in to access your portfolio
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2 days ago
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If you're feeling FOMO, envy and greed about record stock prices, you're not alone. That's how market bubbles form.
Some stock-market contrarians reassuringly say that investors' current concern that the S&P 500 SPX, the Dow Jones Industrial Average DJIA and the Nasdaq COMP are all forming a frothy U.S. market bubble is exactly why the market isn't in one. But a market bubble can materialize even when most investors are worried about one. Like now. A recent Bank of America fund-manager survey found that a record 91% of survey participants believe the stock market is overvalued, and Google Trends shows a sizable increase in recent weeks in the number of finance-related searches focusing on bubbles, as you can see from the chart below. 'I am a senior citizen': My car needs $3,500 for repairs, but only has a trade-in value of $6,000. Do I bother fixing it? Clash of the titans: The hottest momentum stock meets the most notorious short seller When it comes to bubbles, contrarian analysis typically gets it wrong. An analysis of past bubbles suggests not only that widespread concern about bubbles is consistent with one forming — such worry actually plays a central role in a bubble's latter stages. Consider the definition of bubbles from Robert Shiller, the Yale University finance professor who won a Nobel prize in large part because of his research into stock-market bubbles. In his 2000 book 'Irrational Exuberance,' Shiller wrote that a bubble is self-perpetuating: 'News of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases and bringing in a larger and larger class of investors.' Shiller added that these newcomers, 'despite doubts about the real value of an investment, are drawn to it partly through envy of others' successes and partly through a gambler's excitement.' Notice from Shiller's description that bubbles involve a high degree of cognitive dissonance: Despite concern about stocks' overvaluation, investors bet heavily on equities. This dissonance is readily apparent in the Bank of America survey, for example: Even though 91% of survey respondents say that stocks are overvalued, they on balance are more bullish than they've been in months. Investors resolve the dissonance by telling themselves they will know when the bubble is about to burst and get out in time. But the history of bubbles teaches us that this belief represents a triumph of hope over experience. It's simply the greater-fool theory in disguise. AI illustrates how quickly a bubble can burst. Earlier this week the company reported preliminary results for its July quarter that fell far short of analyst expectations, and its stock plunged almost 26% in a single session. It's true that significant differences exist between the current market and the top of the internet bubble, as Daniel Newman, CEO of the Futurum Group, recently argued in a MarketWatch column. But no two bubbles are alike, and the existence of differences between today and early 2000 doesn't mean we're not in a bubble. As I recently pointed out, 10 time-tested valuation indicators show today's stock market to be more overvalued than those at any other time in U.S. history. Benjamin Graham, the father of fundamental analysis and author of the investing classic 'The Intelligent Investor,' made fun of the greater-fool theory by telling a joke, which Warren Buffett of Berkshire Hathaway retold in his 1985 shareholder letter: 'An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. 'You're qualified for residence,' said St. Peter, 'but, as you can see, the compound reserved for oil men is packed. There's no way to squeeze you in.' After thinking a moment, the prospector asked if he might say just four words to the present occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, 'Oil discovered in hell.' Immediately the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St. Peter invited the prospector to move in and make himself comfortable. The prospector paused. 'No,' he said, 'I think I'll go along with the rest of the boys. There might be some truth to that rumor after all.' ' The bottom line? Contrarians are wrong in thinking a bubble can't be forming just because there is widespread current concern about stock-market overvaluation. Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at More: 10 stocks with recently increased dividends — and why they merit a closer look Also read: Why your stock portfolio may actually 'feel' depressed that summer is almost over 'Am I delusional?' My wife and I are in our 50s and have $11 million. We're not leaving it to our kids. Is that wrong? CoreWeave's lockup is about to expire. What that could mean for the stock.
Yahoo
04-08-2025
- Business
- Yahoo
Stocks get hit as economic clouds and tariffs gather — but history suggests it's too soon to panic
Tariff threats from President Donald Trump and fresh signs of a weakening jobs market rattled Wall Street investors on Friday — just as the market enters a historically rocky stretch from August to October. But some investors say this isn't a moment to panic. The stock market, they note, has repeatedly shaken off trade fears in recent months and powered higher. Is this time different? Read: August is historically a bad month for Big Tech stocks. What to expect this year. 'I worked at 14, had an 8.8% mortgage rate and drove used cars': Did boomers really have it easier than millennials? Older adults on 'edge of poverty' lose jobs and funding as new Medicaid and SNAP work requirements loom 'I told him that wouldn't fly': My 90-year-old mother's adviser pushed her to change her beneficiaries. What is going on? 'I have never been asked for money before': My friend wants to borrow $1,600 to pay her rent. Do I say yes? Bonds and the dollar are sounding the alarm about the U.S. economy. Stock investors might want to heed the warning. Despite registering steep losses on Friday—the biggest one-day declines in more than three months—the S&P 500 SPX remains up 25% from its April 8th low, while the Nasdaq Composite COMP has jumped 35% from its 'liberation day' nadir. Trump's latest move — a Thursday deadline for new trade agreements — threatens higher tariffs on more than a dozen countries, including Switzerland. See also: Trump hits dozens more countries with higher tariffs that start Aug. 7'Every dip has its day,' said Eric Diton, president and managing director of The Wealth Alliance in Melville, N.Y., an investment advisory firm that oversees $2.1 billion. He sees the market's resilience continuing unless earnings weaken, inflation picks up, or the unemployment rate rises tensions are resurfacing at the same time the U.S. labor market is showing cracks. Friday's nonfarm payrolls report for July included a weaker-than-expected job gain of 73,000 and big reductions to previous months data. On top of that, the unemployment rate came in at 4.2%, as expected, but up from 4.1% previously. The weak jobs report has strengthened expectations for a September interest-rate cut. On Friday, two Federal Reserve governors — Michelle Bowman and Christopher Waller — voiced renewed concerns about the labor market, reinforcing their dissent earlier this week when they broke from the majority and backed a cut to benchmark rates. Other recent data painted a mixed picture: GDP rebounded in Q2, but the surge was skewed by front-loaded imports tied to tariff fears. Meanwhile, inflation saw its biggest monthly increase since February, though markets largely shrugged that report off. The U.S. economy has so far skirted a recession, even after more than 500 basis points — or 5 percentage points — of Fed rate hikes in 2022 and 2023. CIBC's Gary Pzegeo said the economy was better positioned this cycle, with businesses refinancing and consumers buoyed by post-COVID stimulus and hiring. 'We are able to absorb more than we could in other cycles,' said the co-chief investment officer at CIBC Private Wealth in Boston, which looks after more than $100 billion in assets. What CIBC Private Wealth is watching from here is whether companies beyond the technology sector can make further commitments to capital spending, Pzegeo told MarketWatch. Large tech companies such as Microsoft Corp. MSFT and Meta Platforms Inc. META reported earnings results late in July and sent their shares soaring, lending further support to the idea that the recent stock-market rally might have more room to rise, despite Friday's swoon. See also: Microsoft's stock surges after earnings and Meta's growth strikes Wall Street as incomprehensibly strong, and the stock rockets Some of the biggest names set to release reports in the week ahead are Walt Disney Co. DIS and McDonald's Corp. MCD. Later in the month, attention is likely to turn to the Fed's annual symposium in Jackson Hole, Wyo., between Aug. 21-23, where Chair Jerome Powell is expected to speak — offering another potential trading tariff anxieties and a labor market weaker than previously thought could produce a rocky stretch of trading that investors shouldn't dismiss. That said, relatively easier Fed policy and Trump's tactical approach to tariffs could also mean that stock-market investors might still be inclined to buy risky assets and shrug off their worries. For bonds, the outlook may be a bit more nuanced. There may come a time when bond-market participants might demand higher yields if the U.S. hasn't made any progress in lowering the government's debt and deficit, 'but we are not there yet,' said Diton of The Wealth Alliance said via phone. 'What matters most in the end is that we constructively make trading deals around the world,' he said. History shows that August often brings turbulence for U.S. stocks. The Nasdaq Composite, for example, has averaged a gain of just 0.3% during the month, while September tends to be worse. The Dow Jones Industrial Average DJIA and S&P 500 have both posted average losses of 1.1% for that month, while the Nasdaq has lost 0.9% and the small-cap Russell 2000 RUT has lost 0.6%, according to Dow Jones Market Data. October has a slightly better record, though small-cap stocks tend to lose an average of 0.6%. Until Thursday, when Trump announced steeper tariffs on more than a dozen countries, investors appeared to have moved past their worst stagflation fears — by sending the S&P 500 and Nasdaq to record closing highs on July 28, and keeping long-dated Treasury yields mostly rangebound. But Friday's opened old wounds — reminders that tariffs and labor market unease still have the power to disrupt. Some investors remain optimistic that the current volatility could ease if trade rhetoric cools and economic data holds up. An easier Fed policy path, paired with Trump's tendency to use tariff threats as bargaining chips, could still support stock gains. The bond-market outlook, as noted earlier, is complicated. Tariffs could stir short-term inflation while dragging on long-term growth. At the same time, they may boost government revenue — a possible offset to the concern of rising deficits tied to Trump's tax and spending plan. 'The worst-case scenarios that everyone imagined back in April have turned into something not so bad, but also not so great so we have to be careful about how much optimism gets priced into the market,' said CIBC's Pzegeo. Tariffs 'have to be absorbed somewhere. And right now they are being partially borne by exporters, partially absorbed by domestic sellers and partially absorbed by consumers.' Friday's jobs data also delivered a jolt, with surprise downward revisions for May and June. 'You can get pretty rapid shifts in payrolls from month to month' and Friday's revisions were 'a little startling,' said Pzegeo. Still, 'labor markets are roughly in balance' and pointing to a 'non-recession' scenario. 'The market is swinging back into the camp of expecting a rate cut in September,' he said. 'And rightfully so. The bond market will look through the inflation risk and price in an easier Fed — which should help risky assets, including equities, later in the year.' A record-setting July for stocks gave way to rough start to August — investors may not be ready for what comes next Don't blame Jerome Powell — or the Fed — if you can't afford to buy a house right now Elon Musk to get $29 billion richer after pay package approved. Tesla's stock jumps. 'The sky has not fallen — yet': Is it time to start worrying about a U.S. recession (again)? Sign in to access your portfolio
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30-07-2025
- Business
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Where Morgan Stanley is looking for value after powerful rebound in U.S. stocks
The U.S. stock market mostly added to its big rebound from its April low after President Donald Trump announced on Sunday a trade deal with the European Union, amid worries over rich valuations. Investors have been rotating into cyclical stocks from defensive equities amid signs of a resilient economy and confidence in corporate earnings, Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note Monday. The rotation was partly amplified by optimism over the One Big Beautiful Bill Act suggesting 'a capex boom and cyclical recovery in the second half of 2025 through 2026, potentially further fueled by Federal Reserve rate cuts,' according to her note. Social Security wants to make a change that would cause 3.4 million more people to have to visit its field offices We're in our 70s with a $260K mortgage at 3% interest and $1.6 million in savings. Should we pay off our house in full? Why the man behind 'The Hater's Guide to the AI Bubble' thinks Wall Street's hottest trade will go bust The most important woman in bonds says investors now have unrealistic expectations The stock market has rebounded from the early April selloff sparked by Trump's announcement of 'liberation day' tariffs. The market recovered after the White House paused the tariffs and investors perceived positive developments as the U.S. worked on trade deals. The S&P 500 SPX closed at a record high each day of last week, ahead of Trump's meeting Sunday with European Commission President Ursula von der Leyen in Scotland on trade. They reached an agreement under which the European Union will pay 15% tariffs for most goods imported to the U.S. That followed other trade deals announced last week, including with Japan. Read: S&P 500 scores 5th straight record high ahead of Europe-U.S. trade meeting 'The equity market's powerful recovery from the tariff uncertainty bear market has been driven by multiple factors—technical, positional and fundamental,' Shalett said. 'Oversold conditions and derisking set the stage for a strong pivot back to equities once the 90-day reciprocal tariff pause was announced, while economic resilience supported earnings confidence.' With the S&P 500 again approaching historically high valuations, Morgan Stanley Wealth Management sees investment opportunities in the healthcare sector amid the recent rotation into cyclical stocks, according to Shalett. 'Health care—namely, medical equipment, devices and supplies, and distribution logistics —remains one of our favored fishing ponds for value,' she said. Healthcare XX:SP500.35 has been the worst-performing S&P 500 sector in 2025, according to a Bespoke Investment Group note emailed Monday ahead of the U.S. stock market's opening bell. Consumer discretionary XX:SP500.25 was the only other sector in the red year to date, while six of the S&P 500 index's 11 sectors were beating the index, the Bespoke chart above shows. 'Yes, technology is one of the sectors that's ahead of the S&P 500, but other non-tech sectors like industrials, utilities, financials, and materials have also outperformed' this year, Bespoke said in the note. The S&P 500, which has an outsize weight to Big Tech stocks, has climbed 8.6% in 2025 through Monday. In a sign that this year's rally hasn't been just about Big Tech, shares of the Invesco S&P 500 Equal Weight ETF RSP, an exchange-traded fund that equally weights stocks in the index, has risen 6.5% this year over the same stretch, FactSet data show. Meanwhile, U.S. businesses have been reporting this month their latest quarterly earnings, with results from Big Tech companies Meta Platforms Inc. META, Microsoft Corp. MSFT, Inc. AMZN and Apple Inc. AAPL scheduled for this week, according to the Bespoke note. 'We hope you had a restful weekend, because the last four days of July and the first trading day of August are going to be jam-packed with earnings and economic data,' Bespoke said. The Federal Reserve will wrap up its two-day meeting on monetary policy on Wednesday with a decision on where it's setting interest rates. The U.S. jobs report for July will be released Friday, while data on manufacturing and consumer sentiment will be released that same day. More imminently, Tuesday's U.S. economic calendar includes fresh reports on areas such as job openings and consumer confidence. The U.S. stock market closed mostly higher Monday, with the S&P 500 eking out a gain of less than 0.1% to notch a sixth straight record peak. The tech-heavy Nasdaq Composite COMP rose 0.3% to book a fresh all-time closing high, while the Dow Jones Industrial Average DJIA slipped 0.1%. The S&P 500 ended Monday up 28.2% from its April 8 low, according to Dow Jones Market Data. 'The stock market's stunning rebound and resilience have again emboldened equity investors,' said Shalett, who pointed to their optimism about 'Goldilocks' economic conditions. But she cautioned against 'buying the market' through the passive S&P 500 index, saying 'complacency is elevated, and valuations are rich.' Shalett said to consider stocks with 'earnings and cash-flow upside-surprise potential,' which may be found among 'select tech hardware and services names, industrials, financials, energy and parts of health care that are policy beneficiaries amid higher structural volatility and real rates, and a weak U.S. dollar.' Comcast could see its heaviest internet-subscriber losses ever. Then what? How stock-market investors should trade what could be a historic Fed dissent on Wednesday Royal Caribbean stock gets rocked despite higher demand for cruises. Here's why. 'I have Type 1 diabetes': I'm 64 with a $1.3 million 401(k). Is it too late for long-term-care insurance? Sign in to access your portfolio
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29-07-2025
- Business
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S&P 500 now more likely to reach 7,200 next year, according to Morgan Stanley's Wilson
The new highs keep coming. Futures early Monday showed the S&P 500 on course for its 15th record of 2025. Tariff deals at levels that eight months ago would have been considered economically damaging are now welcomed by investors. And many analysts are embracing the optimism. Mike Wilson, Morgan Stanley's chief stock-market strategist, says he now is leaning more toward his bull case for the S&P 500 SPX, in a new note that published Monday. We're in our 70s with a $260K mortgage at 3% interest and $1.6 million in savings. Should we pay off our house in full? 'Vegas is not fun anymore': $9 cups of coffee and pricier rooms are steering travelers away from the vacation mecca The most important woman in bonds says investors now have unrealistic expectations That's 7,200 for the Wall Street benchmark in 12 months' time, based on earnings per share of $319 and a forward share price–to–earnings multiple of 22.5. Wilson says this view is grounded on a more resilient earnings and cash flow backdrop than previously expected, an improvement driven in part by AI adoption, dollar weakness, cash tax savings from the Trump administration's One Big Beautiful Bill Act and pent-up demand for many sectors in the market. Also, many parts of the stock market will benefit from easier growth comparisons, having experienced what Wilson terms 'rolling earnings recessions for the better part of the last 3 years.' And with private-sector wage growth in decline for the last several years — and AI adoption accelerating the phenomenon — this positive operating leverage should see profit margins expand. All told, earnings revision breadth has improved considerably in recent months, he says. The high probability of Federal Reserve rate cuts in the first quarter of 2026 will also be a boon for stocks. Indeed, the likelihood of easier monetary policy is one reason Wilson is comfortable with applying the historically high 22.5 multiple. 'On that score, our regime analysis shows that when EPS growth is above the long-term median and the fed-funds rate is down on a year-over-year basis (our house views by mid-2026), the market multiple expands 90% of the time,' Wilson says. With regard to tariffs, he acknowledges they may be a problem for consumer-goods companies, in which he suggests investors should be underweight. But overall the 'rate of change on policy uncertainty peaked back in April as stocks troughed.' Wilson's favored sector is industrials, even though he notes it's already the best performing in the S&P 500 to date in 2025 and over the last month. 'Relative earnings revisions remain durable, capacity utilization is stabilizing, and aggregate C&I [commercial and industrial] loans have surpassed $2.8 trillion (the highest level since 2020),' he writes. Companies likely to benefit from domestic infrastructure spending, particularly related to technology, include Rockwell Automation ROK, Eaton ETN, Trane Technologies TT and Johnson Controls International JCI. Despite Wilson's positivity going into 2026, he accepts that the near-term set-up is not without risks, including stubbornly high longer-term Treasury yields, tariff-related inflation and seasonal stock-market headwinds. 'Thus, we do expect some consolidation tactically, but would reiterate that we expect pullbacks to be shallow, and we're buyers of dips,' he says. U.S. stock-indices SPX DJIA COMP are slightly higher at the opening bell as benchmark Treasury yields BX:TMUBMUSD10Y reverse early falls. The dollar index DXY is up, while oil prices CL.1 jump and gold GC00 is trading around $3,336 an ounce. Key asset performance Last 5d 1m YTD 1y S&P 500 6388.64 1.46% 3.49% 8.62% 17.03% Nasdaq Composite 21,108.32 1.02% 4.12% 9.31% 21.61% 10-year Treasury 4.374 -1.00 14.60 -20.20 19.50 Gold 3339.3 -2.08% 0.73% 26.52% 40.22% Oil 65.71 -0.11% 1.14% -8.57% -13.45% Data: MarketWatch. Treasury yields change expressed in basis points Need to Know starts early and is updated until the opening bell, but to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern. The U.S. and European Union agreed a trade deal over the weekend that increases tariffs on most E.U. exports to the U.S. to 15%. The U.S. and China will conduct more trade talks on Monday in Sweden. A busy week of possible market catalysts include U.S. second quarter GDP and the Federal Reserve policy decision on Wednesday, and the July nonfarm payrolls report on Friday. It's also a big few days for corporate earnings, with highlights being Meta META and Microsoft MSFT on Wednesday, followed on Thursday by Apple AAPL and Amazon AMZN. Elon Musk said Tesla TSLA has signed a $16.5 billion deal with Samsung Electronics KR:005930 to produce new-generation chips for the electric-vehicle maker. Crypto lenders dial up risk with 'microfinance on steroids' How to extract $400 million from a billionaire: Use a Gilded Age family name. Confessions of a laptop farmer: How an American helped North Korea's wild remote worker scheme. Clifford Asness, the hedge-fund manager and co-founder of AQR Capital Management, delivered on X this succinct observation regarding market conditions right now. Here were the most active stock-market ticker symbols on MarketWatch as of 6 a.m. Eastern. Ticker Security name TSLA Tesla NVDA Nvidia PLUS ePlus PLTR Palantir Technologies GME GameStop AMD Advanced Micro devices OPEN Opendoor Technologies NIO NIO AAPL Apple TSM Taiwan Semiconductor Manufacturing Zookeepers in Prague turn into puppeteers to save baby vultures. A good walk spoiled. Introducing 'Golf Force One'. Dressing gown bishop tells church choir to 'leave my house'. For more market updates plus actionable trade ideas for stocks, options and crypto, . Royal Caribbean stock gets rocked despite higher demand for cruises. Here's why. SoFi's stock soars as earnings bring surging loan growth and a number of records Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
