The S&P 500 index experienced its best two-year streak since the 1997-98 Asian financial crisis, with the hype surrounding artificial intelligence sparking exuberance for technology stocks.
But there are cautionary signs that the rally is overdone and optimism is overrated, warned Howard Marks, co-founder and co-chairman of Oaktree Capital Management.
“The bubbles I’ve lived through have all involved innovations … and many of those were either overestimated or not fully understood,” he said in a memo headlined “On Bubble Watch.” It was posted on Oaktree Capital’s website on Tuesday.
With 25 years of experience in the financial investment, Marks has witnessed the burst of the dot.com bubble between the late 1990s and 2000 and then the housing bubble in the aftermath of the subprime mortgage crisis in the late 2000s.
“Whenever I hear …. there’s a price that’s too high, but we’re not there yet, I consider it a sure sign that a bubble is brewing,” said Mark, adding: “Trees don’t grow to the sky.”
The investment guru took Nvidia Corp., the top AI chip designer, as an example.
The leader of the top seven technology stocks — the so-called “Magnificent Seven” – is now trading at around 30 times future earnings.
“What does a multiple (of Nvidia) in the 30s imply? … Investors are assuming Nvidia will demonstrate persistence,” Marks warned.
The S&P 500 was up 26% in 2023 and 25% in 2024.
Its bull run implied the presumption that the top seven companies, including Apple, Microsoft, Alphabet, Amazon.com, Meta and Tesla, will continue to be successful, he noted.
“When something is on the pedestal of popularity, the risk of a decline is high.”
Marks also expressed caution against the surge in the Bitcoin price.
“Regardless of its merit, the fact its price rose 465% in the last two years doesn’t suggest an overabundance of caution.”
By Yeonhee Kim
yhkim@hankyung.com
Jennifer Nicholson-Breen edited this article.
