The Buffett indicator is the ratio of the total market cap of all U.S. stocks to U.S. gross domestic product (GDP). When Buffett first talked about this ratio in 1999, he used gross national product (GNP), which measures the total value of goods and services produced by a country's residents both inside and outside the country. GDP is more widely used than GNP as a measure of the U.S. economy and has replaced GNP in calculating the Buffett indicator. In a sense, the Buffett indicator is similar to the most widely used stock valuation metric -- the price-to-earnings ratio. Instead of the share price of a single stock, the total market cap of all U.S. stocks is used. Instead of the earnings generated by a single company, the metric uses the total value generated by everyone in the U.S. With the Buffett indicator and the price-to-earnings ratio, a lower number reflects a more attractive valuation. Buffett hinted at an ideal range for his namesake metric in the 2001 Fortune article, saying, "If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you." History lessons The Buffett indicator isn't anywhere close to the 70% to 80% range right now. It's slightly over 208% -- the highest level the indicator has ever reached. If you want to know why Buffett isn't buying many stocks these days, the Buffett indicator probably explains it. He noted in 2001, "If the ratio approaches 200% -- as it did in 1999 and a part of 2000 -- you are playing with fire." Today, the indicator isn't just approaching 200%; it has risen above that dangerous threshold. https://www.theglobeandmail.com/investing/markets/markets-news/Motley Fool/33291204/the-buffett-indicator-is-at-its-highest-level-ever-history-shows-investors-should-brace-themselves-for-what-the-stock-market-might-do-next/
In a Bubble nobody cares about "valuation." The FOMO is real. What happened to the crashing semi stocks after DeepSeek? The selling on SMH went to Buy! Buy! Buy! SOXL is up 279% since the bottom on 4/7/25. NVDA is up a mere 89% in that time. Seems like SMH goes up every day. My favorite is the ROBN ETF (2x HOOD). It is up a mere 850% since then.