The global "Buffett indicator", a market gauge favored by renowned investor Warren Buffett, has surged to nearly 110%, indicating that stocks worldwide are overvalued and could potentially crash in the coming months.
The "Buffett indicator" is a ratio that compares the total market capitalization of all publicly traded stocks worldwide to the global GDP. A reading above 100% suggests that stocks are overvalued in relation to the size of the global economy.
"The Buffett crash indicator is sounding the alarm again after stocks have soared too much this year," tweeted Welt market analyst Holger Zschaepitz on Saturday. He added, "Global stocks are now worth more than the global GDP."
Warren Buffett, the CEO of Berkshire Hathaway, has previously championed this indicator as "probably the best single measure of where valuations stand at any given moment." He noted that the indicator had skyrocketed during the dot-com bubble, which should have served as a "very strong warning signal" of an impending disaster.
Buffett has suggested that purchasing stocks when the indicator reads 70% or 80% would likely yield profits. However, buying stocks when the ratio approaches 200% would be akin to "playing with fire."
While the global stock market is yet to reach that level, the US-specific Buffett indicator currently reads 159%, according to a Markets Insider analysis. This surge is largely due to the S&P 500 and Nasdaq Composite gaining 13% and 29% respectively this year. However, it still remains well below its peak of more than 200% in late 2021.
As the global "Buffett indicator" continues to rise, investors worldwide should heed Buffett's advice and exercise caution in their stock market activities.
The "Buffett indicator" is a ratio that compares the total market capitalization of all publicly traded stocks worldwide to the global GDP. A reading above 100% suggests that stocks are overvalued in relation to the size of the global economy.
"The Buffett crash indicator is sounding the alarm again after stocks have soared too much this year," tweeted Welt market analyst Holger Zschaepitz on Saturday. He added, "Global stocks are now worth more than the global GDP."
Warren Buffett, the CEO of Berkshire Hathaway, has previously championed this indicator as "probably the best single measure of where valuations stand at any given moment." He noted that the indicator had skyrocketed during the dot-com bubble, which should have served as a "very strong warning signal" of an impending disaster.
Buffett has suggested that purchasing stocks when the indicator reads 70% or 80% would likely yield profits. However, buying stocks when the ratio approaches 200% would be akin to "playing with fire."
While the global stock market is yet to reach that level, the US-specific Buffett indicator currently reads 159%, according to a Markets Insider analysis. This surge is largely due to the S&P 500 and Nasdaq Composite gaining 13% and 29% respectively this year. However, it still remains well below its peak of more than 200% in late 2021.
As the global "Buffett indicator" continues to rise, investors worldwide should heed Buffett's advice and exercise caution in their stock market activities.