Wise Owl

Buffet Indicator & U.S. Stock Market

The Buffet Indicator is a valuation multiple used to assess how expensive or cheap the aggregate stock market is at a given point in time. It was proposed by investor Warren Buffett in 2001, who called it ‘probably the best single measure of where valuations stand at any given moment‘ . It compares the total value of all publicly traded securities in the U.S. to the U.S. GDP .

The current value of the Buffet Indicator is 181%, (July 2023) – which suggests that the U.S. stock market is reportedly worth $48.37 trillion, while the U.S. GDP is $26.74 trillion

This ratio is 50.50% above the historical trend line, suggesting that the stock market is overvalued relative to GDP. Buffett warned that if the ratio approaches 200%, ‘you are playing with fire‘.

Buffett Indicator: $48.85T ÷ $26.91T = 182%

Does it Matter?

The Buffett Indicator expresses the value of the U.S. stock market in terms of the size of the U.S. economy. If the stock market value is growing much faster than the actual economy, then it may be in a bubble.

Buffet Indicator Movement Above and Below Trend Line

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