Wall Street on red alert as Warren Buffett’s favorite stock market gauge hits the worst reading EVER
... The so-called Buffett indicator divides the total value of all US stocks by the total economic output of the United States, delivering one simple number that sums up how investors are feeling at the moment.
Buffett said that a reading of 100 percent suggests markets are in balance - in other words, the stock market is worth about as much as the US economy produces in one year - while a lower figure means stocks are undervalued.
Right now, the index hit its highest reading ever - 232 percent - indicating that stocks are historically overvalued. ...
Right now, the indicator is well above its last two all-time highs: The 219 percent reading seen at the height of the 2021 pandemic stock market frenzy, and the 163 percent level at the 2000 peak of the dot com bubble. ...
Using SPX tonight, instead of the Wilshire 5000 as Buffett does, we're at 224.8 vs. 1938-2019 mean level of 81!
The market has been obscenely overvalued way beyond the 1938-2019 experience for six consecutive years and counting, and investors keep keeping it that way by continuing to pour money into it. It won't unwind until they stop. And since they believe that the market goes only up, it will probably take a market-loathing mother of all economic disasters to change their minds and make them do so.
Meanwhile real return since August 2000 (139), the previous secular peak, is now 5.27% per annum through March 2026 (25 years, 7 months).
Real return from January 1975 to August 2000 (the previous 25 years, 7 months) was 11.19% per annum, 112% better because valuation was 61 in 1975 and falling.
Investing at high valuations by definition produces poorer results. Compare August 1965 (118) to August 2000 (139): 6.95% per annum real.
(I need to update this chart for 2024 and 2025!)
