The Buffett’s Indicator Warns Investors

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The USA Buffett Indicator is at 170.

American Stocks are now overvalued relative to GDP .

Warren Buffett is the greatest investor of all time. He does not time the market, but the indicator he considers to value stocks is the market cap to total GDP. It is named the Buffett indicator because he made it so famous . . . Buffett said the indicator is “probably the best single measure valuations at any given moment.” The market cap shows stocks prices, and GDP stands for gross domestic product.

The Buffett indicator above 100 denotes stocks are overvalued. The indicator measures the world’s entire economy and the entire stock market. A number over 100 means the stock market is priced higher than economic production. The global Buffett indicator is showing the striking gap between record high stock prices and depressed economies.

The situation in the USA is worse than in the world. The Buffett indicator is modestly overvalued at 131, and above 134 is significantly overvalued. Buffett said in 2001, when the indicator hit a record high before the dot.com crash, the indicator “should have been a very strong warning signal.” The indicator now at 170 is a warning signal to investors of high stock valuations compared to companies’ production. The S&P 500 has recovered to the point before the Coronavirus, and the stock market had its best 100-day run since 1933.

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