In 2001, Warren Buffett famously described the stock market capitalization-to-GDP ratio as “the best single measure of where valuations stand at any given moment.”
This ratio, now commonly known as the Buffett Indicator, compares the size of the stock market to that of the economy. A high ratio indicates an overvalued market—and as of February 11, 2021, the ratio has reached all-time highs, indicating that the U.S. stock market is currently strongly overvalued.
Today’s graphic by Current Market Valuation (CMV) provides an overview of how the Buffett Indicator has changed since 1950. This also explains how the ratio is calculated, and why things might not be as dire as seem..
At 228%, the Buffett Indicator is at all-time highs, which means the U.S. stock market value is currently more than double the country’s GDP.
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