Australia-warning sign!Warren Buffett’s favorite valuation indicator: US stocks are in danger | Australia Chinatown

Release your eyes, put on headphones, and listen~!


On one side is the stock index, which once again set a record high in history, on the other side, the early warning indicator is ticking.What would you think?

This is the current status of the US stock market.

Although the U.S. stock market set another record this week, Buffett’s favorite stock index indicator issued a warning signal to remind investors that it is time to be cautious when others are greedy.

This Buffett’s favorite valuation metric is actually a simple ratio: divide the total market value of the US stock market by the total dollar value of the US GDP.

The index broke through the previous peak of the Internet era for the first time in 2019.However, it has been showing an upward trend in the past few decades.

Recently, this indicator has risen to the warning range: the total market value of the US stock market is more than twice the estimated US GDP, and the reading has exceeded the long-term trend level.



In response, Michael O'Rourke, chief market strategist at JonesTrading, said: "This highlights the extraordinary enthusiasm that we have witnessed in the U.S. stock market. Even if people expect those (Fed’s) policies to be permanent, it doesn’t make sense for stocks. Pay a valuation that is twice the 25-year average."

In addition to the above-mentioned Buffett’s favorite valuation indicators, various other U.S. stock valuation indicators have also exceeded previous records.The price-to-earnings ratio, sale-to-equity ratio, and price-to-book ratio are all far higher than the peak levels of the Internet era that many investors believe.

Although Goldman Sachs also admitted that one of the examples of US stock investors neglecting valuation is Tesla.Goldman Sachs said that even though Wall Street has an optimistic consensus on Tesla's performance, the crazy market has allowed the company's stock price to rise by more than 700% last year.

In the current U.S. stock market, no matter what valuation method is used, even if the technology giants whose valuations are already high are removed, the valuation of U.S. stocks is close to the highest level in history.


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