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This should be stock market investors' biggest concern, strategist says

Stock valuations are still looking too lofty even as the major indices continue to retrench on the one-two punch of Omicron variant fears and a hawkish shift in Federal Reserve policy.

"I worry about markets because stock market valuations look relatively high," said Torsten Slok, Apollo Global Management chief economist, on Yahoo Finance Live. (Apollo is the parent company of Yahoo Finance.)

Slok said the potential for interest rate hikes from the Fed in 2022 could be a headwind to markets, especially in light of valuations that aren't too far removed from record highs.

Added Slok, "I think the economy would still be OK [if the Fed raises rates next year], but I am actually quite worried about the vulnerabilities and the sensitivities simply because valuations are so stretched."

Berkshire Hathaway's Charlie Munger voiced similar concerns on Friday about stock valuations, noting they are "crazier" than the dot-com bubble.

Indeed, air continues to be let out of what may be the near-term bubble in broader markets.

The Dow Jones Industrial Average (^DJI) fell 162 points in afternoon trading Friday, as the World Health Organization (WHO) reported the Omicron variant has now been found in 38 countries. All three major indices came under selling pressure, also not helped by a lower than expected 210,000 increase for November non-farm payrolls.

Trading has been volatile to say the very least going back to a 1,010-point drubbing on the Dow the day after Thanksgiving.

The Dow tanked 652 points in Tuesday trading, while the Nasdaq Composite (^IXIC) and S&P 500 (^GSPC) were also deeply in the red. Tepid action persisted into Wednesday, with the Dow reversing a 520-point intraday gain to finish down 461 points. The Dow clawed back more than 600 points on Thursday in what is being seen by pros as a short-term relief rally.

Most market pros say caution will be the name of the game right now.

"It's not the end of the world. These things are normal and they are healthy. But it will be a stock picker's market, and people will have to be a lot more careful," said Matt Maley, Miller Tabak chief markets strategist, on Yahoo Finance Live.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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