Warren Buffett Indicator Soars To 208%, Surpassing Dot-Com, 2008 Levels

The renowned Warren Buffett Indicator, a crucial valuation metric comparing total stock market capitalization to the Gross Domestic Product (GDP), has reached 208.42%.

What Happened: This figure, according to LongtermTrends, calculated using the S&P 500 and the broader Wilshire 5000 index's capitalization, significantly surpasses levels seen before major market corrections ? it was around 140% before the 2000 dot-com bubble crash and 110% before the 2008 financial crisis.

Despite this alarming valuation, indicating a potentially overvalued market, the U.S. economy has demonstrated remarkable resilience.

Ed Yardeni of Yardeni Research points out a fascinating paradox: “The economy won’t let us down. Despite numerous crises, real GDP has remained recession-resistant since the Covid lockdown during the first half of 2020.”

He highlights almost six recession-free years amidst global upheavals like the pandemic, the Russian invasion of Ukraine, monetary policy tightening, the Middle East war, and Donald Trump‘s Tariff Turmoil.

Indeed, Yardeni argues, “it really has been the Roaring 2020s so far. Real GDP is at a record high and so is the stock market.”

This robust economic performance, however, hasn’t translated into widespread public optimism. Measures of consumer and business confidence “doesn’t seem to be much roaring.”

Yet, Yardeni sees “plenty of it visible in the quarterly Buffett Ratio.”

He notes that a useful weekly proxy for the Buffett Ratio, the S&P 500 stock price index divided by the S&P 500 forward revenues per share, “rose to 3.03 during the July 9 week matching the record high just before the latest correction started on February 19.”

See Also: As Trump Calls For 3-Percentage Point Rate Cut, ‘Too Late’ Jerome Powell To Resign, June Fed Minutes Show ‘Uncertainty’ Reigns Supreme

Why It Matters: This divergence between sentiment and market valuation, as reflected in the soaring Buffett Indicator, raises a critical question: Is the economy truly roaring into the 2020s, or is the market simply exhibiting an unsustainable exuberance that could lead to a significant correction?

The historical context of the Buffett Indicator certainly suggests caution, yet Yardeni’s analysis points to underlying economic strength that defies conventional expectations.

Price Action: The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF , which track the S&P 500 index and Nasdaq 100 index, respectively, ended on a mixed note on Friday. The SPY was up 0.28% at $625.82, while the QQQ declined 0.14% to $555.45, according to Benzinga Pro data.

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Disclaimer:?This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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