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The Buffett Indicator is indicating US stocks might be overvalued.
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The indicator was coined by Warren Buffett and measures the total US market cap to GDP.
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“If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire,” Buffett said in a 2001 Fortune article.
Warren Buffett’s favorite stock market valuation indicator just hit a record high, signaling that stocks might be highly overvalued.
The Buffett Indicator, which measures the total market cap of US stocks relative to US GDP, hit an all-time peak of 200% on Monday, surpassing the record high of 197% reached in November 2021.
In other words, the US stock market’s total market cap of about $55 trillion, as measured by the Wilshire 5000 index, is about double the size of annualized US GDP, which is at about $27 trillion.
The stock market experienced a painful…
