Warren Buffett's global market gauge soars to nearly 110%, signaling stocks are overvalued and might crash
CNBC
- The global "Buffett indicator" has jumped to nearly 110%, signaling stocks are overvalued.
- Warren Buffett's preferred gauge divides the total market cap of global stocks by worldwide GDP.
- The indicator spiking is a "very strong warning signal" for the stock market, Buffett has said.
The global version of Warren Buffett's favorite market gauge has surged to nearly 110%, signaling that stocks around the world are overheated and could crash in the coming months.
The worldwide "Buffett indicator" takes the combined market capitalization of the planet's publicly traded stocks, and divides that figure by global GDP. A reading above 100% suggests that stocks are overvalued relative to the size of the world economy.
"The Buffett crash indicator is sounding the alarm again after stocks have soared too much this year," Welt market analyst Holger Zschaepitz tweeted on Saturday, attaching a chart showing the gauge. "Global stocks are now worth more than the global GDP."
—Holger Zschaepitz (@Schuldensuehner) June 24, 2023
Buffett championed the US version of his yardstick in a Fortune magazine article in 2001. The famed investor and Berkshire Hathaway CEO called it "probably the best single measure of where valuations stand at any given moment."
The billionaire noted the indicator skyrocketed during the dot-com bubble, and said that should have been a "very strong warning signal" of an impending disaster. He added that buying stocks when the gauge reads 70% or 80% would likely pay off, but doing so when the ratio approaches 200% would be "playing with fire."
The global stock market has a way to go before reaching that level, but the Buffett indicator for the US alone currently reads 159%, a Markets Insider analysis shows. It has soared largely due to the S&P 500 and Nasdaq Composite gaining 13% and 29% respectively this year — but still remains well below its peak of more than 200% in late 2021.