Buffett’s most popular market indicators have soared to 184%in the two years, which indicates that the valuation of US stocks is too high and a devastating collapse may occur.
The Buffett indicator is “the total market value of all active US stocks with the total market value of all transactions is divided by the latest quarterly domestic GDP (GDP).”Investors usually use this indicator to compare the overall value of the stock market and the national economy scale.
According to the Wilshire Indexes data, the FT Wilshire 5000 Index has jumped 9%this year, a record high, and raised its market value to about 5.47 trillion US dollars.The GDP of the United States (GDP) rose by 40%from an epidemic low, reaching US $ 2.794 trillion in the previous quarter.Except for the former, the number of readers of this indicator is 184%.
Buffett announced in an article in the 2001 “Fortune” magazine that the measure of measurement named after his name “may be the best single standard for measuring any specific time valuation status.”
Buffett once said that when the stock valuation reaches 100%, it may be fair, and when 70%or 80%reaches 70%, it is close to low -priced areas, but also warns that buying stocks when nearly 200%will be “playing fire.”
The legendary investor also said that when the indicator was soaring to the highest point of history, it was a “very strong warning signal”, indicating that the collapse was coming.
Since the beginning of this year, US stocks have reached a record high, prompting some critics to sound the alarm about bubbles.The significant rise in artificial intelligence -related stocks such as Nvda.us and Microsoft, as well as the Wall Street’s expected heating up the Fed’s interest rate cuts this year and the economy will be heated up, which has helped the stock market.
This indicator proved its value in early 2022. At that time, the indicator turned on red lights, soaring to more than 200%.In the following 12 months, the S & P 500 Index and the Nasdaq Composite Index plummeted 19%and 33%, respectively.
But it is worth noting that this indicator is far from perfect.This indicator compares the current value of the stock market with the economic growth data of the previous quarter.In addition, the GDP that this indicator does not include overseas income, but US stock prices include the value of the company’s domestic and international business.
However, for some experts, this indicator has returned to the high level before the past market disaster, which is obviously a warning.