Howard Marks, in his September 2025 appearance in The Roundup, dissected what he called “worrisome equity valuations,” warning that the market’s surface strength masks deeper imbalance. “A bit over half of the S&P 500’s jaw-dropping 58% two-year total return in 2023-24 was attributable to the spectacular performance of just seven stocks,” he said, referring to the “Magnificent Seven” – Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Tesla.
“These are great companies – some are the best companies ever – and these seven stocks have grown to represent a startling one-third of the total market value of the 500-stock index.”
Yet he emphasized that admiration for the companies should not obscure what their outsized influence implies for valuations.
“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,” Marks observed.
He acknowledged that their average price-to-earnings ratio of roughly 33 is “certainly an above average figure,” but added, “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.”
Still, his concern lies elsewhere. “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.”
For Marks, this distinction between extraordinary companies and an overheated market is critical.
“The existence of overvaluation can never be proved,” he said, “and there’s no reason to think the conditions I discuss in Calculus of Value imply there’ll be a correction anytime soon.”
Yet his conclusion carries the quiet unease that long-time readers of his memos recognize. “But, taken together, they tell me the stock market has moved from ‘elevated’ to ‘worrisome.’”
That progression – from rational enthusiasm to speculative excess – echoes a pattern Marks has chronicled for decades.
The dynamic, as he frames it, is not about predicting crashes but about recognizing when optimism has been fully priced in. When the “Magnificent Seven” account for half the market’s recent gains and a third of its capitalization, investors risk mistaking concentration for stability.
By separating admiration for great businesses from the valuation of their shares, Marks reinforces a fundamental investing discipline: respect quality, but question price. His comments in The Roundup capture the tension between innovation and exuberance that defines this phase of the cycle. The market, he suggests, may not yet be irrational—but it is certainly leaning that way.
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