Wall Street’s Warren Buffett indicator smashes past Dotcom and COVID-era highs

The Buffett indicator has blasted to 218%, breaking every record set in the past.The measure compares the Wilshire 5000 index, which tracks the value of all publicly traded U.S. companies, against the country’s gross national product.

At this level, the ratio is far beyond the highs seen during the Dotcom bubble and the pandemic rally, when it reached around 190%. For markets, this is uncharted ground.

This yardstick first caught attention after Warren Buffett himself called it “probably the best single measure of where valuations stand at any given moment” in a 2001 Fortune column. Back then, the ratio had been near 150% at the height of the Dotcom craze. He warned investors, saying:

“If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.”

Today, at 218%, the fire alarm isn’t just ringing, it’s deafening.

Tech giants drive rally

The surge has been powered by mega-cap technology firms. These companies have thrown billions into artificial intelligence projects and are being rewarded with record valuations. Equity values are growing much faster than the economy itself, creating a disconnect that is exactly what this ratio was meant to show.

Other valuation tools are sending similar messages.The S&P 500’s price-to-sales ratio, according to Bespoke Investment Group, has reached 3.33.For perspective, the Dotcom peak topped at 2.27.The post-COVID boom pushed it to 3.21 before easing.

That makes today’s number the highest on record. Investors like Paul Tudor Jones have also looked to the Buffett indicator in the past as a signal for overheated conditions, and the current level is well beyond anything seen in two decades.

Some argue this metric doesn’t say what it once did. The U.S. economy has transformed in the last twenty years. It is less dependent on factories and heavy assets, and more on technology, software, and data networks.

Traditional GDP and GNP numbers may not fully capture this shift. That has led some to suggest that higher valuations could be justified in an economy increasingly built on intellectual property.

Still, the extreme reading comes as Buffett himself has stayed quiet on the indicator for years. What he has done is build a mountain of cash at Berkshire Hathaway. The firm reported a hoard of $344.1 billion in the second quarter, and it has been a net seller of equities for eleven straight quarters. He is preparing to hand over leadership to Greg Abel, but the timing of that handoff comes with Berkshire’s fortress-like balance sheet intact.

Whether the indicator is outdated or not, the numbers are hard to ignore. At 218%, the market is priced higher against the economy than at any point in history.

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