Buffett Indicator

When the total value of the stock market runs far above the size of the real economy, stocks are priced for corporate profits to grow faster than GDP has historically allowed — a position that eventually corrects. Warren Buffett called this the single best measure of overall market valuation for a reason: it's simple, hard to game, and grounded in the idea that markets can't permanently detach from the economy that feeds them. Useful as a broad-strokes compass for whether to lean toward risk or caution at an index level, especially when combined with CAPE. One thing to know about the bands here: like CAPE, they're calibrated against a rolling 30-year window — full-history bands would call every modern reading extreme because the ratio has drifted structurally higher since the 1990s. The chart scores against the long-run trend of the ratio, not a fixed level, so that drift doesn't do the rating's work for it. The market-cap input is the Fed's nonfinancial corporate equity series rather than the Wilshire 5000 — slightly narrower, but it tracks the popular versions closely.