SPY
What Is The Buffett Indicator? The so-called “Buffett indicator” is also known as the market capitalization-to-GDP ratio. The metric earned its nickname after Buffett once said it's “the best single measure of where valuations stand at any given moment.”
The Buffett indicator is calculated by dividing the total value of all stocks in the U.S. market and by the gross domestic product of the U.S. Traders typically use the Wilshire 5000 Total Market Index as a measure of total U.S. market cap."The chart shows the market value of all publicly traded securities as a percentage of the country's business — that is, as a percentage of GNP,” Buffett said. “The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment.”
The indicator isn't a sign of an imminent market sell-off, as suggested by the fact it has been historically high for several years now.
Buffett Indicator' hits all-time high suggesting that stock market is currently extremely overvalued. To believe in new highs or higher prices is to again believe that markets can sustain a market cap to GDP ratio north of 150% when so far all of market history says otherwise. Before Black Tuesday in 1929, it was at 30.
Market Cap to GDP Formula = Value of all public stocks in one country / gross domestic product of a country *100
The reason he says this is that it’s a simple way of looking at the value of all stocks on an aggregate level, and comparing that value to the country’s total output, which is its gross domestic product. This relates very closely to a price-to-sales ratio, which is a very high-level form of valuation.
“All-time highs are great, and they often lead to further highs. But they can also signal increased risk.”