A stock market statistics named after the legendary investor Warren Buffett flashes a warning sign.
The Buffett indicator calculates the ratio of the market capitalization of all listed shares in the US to the gross domestic product of the country or GDP.
Experts warn that the meter is on a record high -and above where it was before the dot -com bubble burst.
This means that the market is overvalued and can go to a malaise.
The figure reached 230 percent from November 2024, according to data from Kailash Capital Research.
This type of market dynamics has not been seen since March 2000, when the market-to-BBP ratio rose to 175 percent, Fortune reported.
If the appreciation of companies exceeds the total GDP, this may indicate that they do not create sufficient real economic value that is traced back in the economy.
GDP is effectively the total turnover in the country, and this means that companies are appreciated higher than the actual value they create.
“There must be real, real economic profits to justify ratings,” said Matthew Malgari, one of the authors of the report. “The data is ruthless,” he and co -author Sanjeev Bhojraj said.
A stock market metriek named after the legendary investor Warren Buffett blinks a warning signal
The last figures show GDP that is a measure of all goods and services produced in the US, 3.1 percent grew in the three months between July and September.
Meanwhile the The US stock market achieved more than 20 percent in 2023 and in 2024 – A remarkable achievement that it has not achieved since the end of the 1990s.
So far, the S&P 500, which follows the 500 largest companies in the US, has reached new records in the midst of optimism around the new presidential administration.
Many investors are positive that the market, and in particular the beautiful seven megacap-technological shares, will continue to collect with the pro-growth and anti-regulation policy of Donald Trump.
But others warn that these back-to-back rallies, as also happened in 1997 and 1998, can lead to a crash such as the Dot-Com Bubble that bursts in the early 2000s.
JPMorgan CEO Jamie Dimon warned earlier this week that the stock market was blown up – and admits that he feels more careful than many in the business world.
Halfway through the late nineties, the market was also heavily concentrated.
The market capitalization of the Top 50 companies was 74 percent of GDP, according to Kailash Capital Research.
In November 2024, the market capitalization of the top 50 shares was 110 percent of GDP.
According to the research, this indicates that the stock market could be on its way to a similar decline.
It suggests that not only market valuations are too high, but they are also overly concentrated with the largest companies in the US.
Many investors are positive that the market will continue to collect with the pro-growth and anti-regulation policy of Donald Trump
The US stock market achieved more than 20 percent in 2023 and in 2024 – a remarkable performance that it has not achieved since the end of the 1990s
According to Buffett itself, the metric is especially useful for investigating the current valuations of companies – and seeing whether they are overvalued or undervalued.
“You have to remember that future returns are always influenced by the current ratings and thinking about what you currently get for your money on the stock market,” the 94-year-old billionaire told Fortune in 1999.
What he meant was that too expensive ratings, even from great companies, could still lead to meager investment returns because an investor may not buy at the right price.
However, some experts think that the Buffett indicator is not perfect statistics.
Although it is instructive, it cannot take into account the fact that many companies on the US stock market sell their goods and services abroad, BCA Research Chief -Strategist Dhaval Joshi told Fortune.
'The only small error or the problem with the measure is that if the companies in market capitalization [total] His global companies, what they are of course, then it is a kind of mismatch because you look at the market capitalization of global companies versus the American GDP, effective total turnover in the United States, “said Joshi.
