"The "Warren Buffett Indicator" is a simple yardstick that compares the total U.S. stock market's value to the size of the U.S. economy. It's recently surged above 200%, a level Buffett once warned is like "playing with fire," signaling stretched valuations versus economic output. It's soared because market values have risen far faster than GDP, driven by mega-cap gains and optimism, pushing the ratio to roughly 217%-well above long-term norms and prior peaks-suggesting elevated risk if profits or growth don't keep up."
"It's the ratio of total U.S. stock market capitalization (often proxied by the Wilshire 5000) divided by U.S. GDP, giving a quick read on whether stocks look expensive relative to the economy's size. Buffett popularized it two decades ago, calling it "probably the best single measure" of broad market valuation at a point in time, which is why it carries his name today."
The Warren Buffett Indicator measures total U.S. stock market capitalization divided by U.S. GDP. The ratio has risen to roughly 217% as of mid‑2025, well above long-term norms and prior peaks. Market capitalization has grown much faster than GDP, driven by mega-cap gains and AI-related optimism. Elevated readings signal stretched valuations relative to economic output and suggest higher downside risk if corporate profits or economic growth falter. The measure has limitations: multinational earnings, interest rates, and margins can skew the ratio. Use the indicator alongside other metrics; high readings warn caution but offer no precise timing signal.
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