The so-called “Buffett indicator” stands at about 232.5%, having risen 13% from its March 30 low, according to GuruFocus. The indicator has never been higher in the entire history of GuruFocus data, dating back to 1970. Yahoo reports this.
At current levels, the indicator is in the “significantly overvalued” zone, and stocks are potentially heading toward moderately negative returns over the next year.
The “Buffett Indicator” takes the Wilshire 5000 Index (considered to represent the entire stock market) and divides it by annual U.S. GDP.
“This ratio has certain limitations in terms of what you need to know,” Buffett explained. “Nevertheless, it is probably the best single indicator of where valuations stand at any given moment.”
Buffett himself has bet on the future of AI, maintaining his investment in Apple stock and, more recently, increasing his position in Alphabet. Berkshire Hathaway’s current CEO, Greg Abel, recently invested $10 billion in Alphabet to help fund the tech giant’s rapidly expanding AI infrastructure.
And yet it is hard to argue with the fact that stock valuations have reached alarming levels. Aside from the “Buffett indicator,” trading activity in U.S. stocks with high price-to-sales ratios is near a decade-high—it was higher only in 2000, according to new research by Goldman Sachs strategist Ben Snyder.
