Buffett Indicator – The Stock Market Cap to GDP Ratio - DQYDJ

This page computes and graphs the Buffett Indicator valuation or stock market capitalization to GDP ratio for the United States. It provides a historical Buffet Indicator graph and current value, plus the median, minimum, maximum, and average value for the indicator.

The tool uses the Federal Reserve's quarterly estimate of the total value of US corporate equities divided by Gross Domestic Product.

Buffett Indicator for the United States

When you first opened this page (or if you toggle the method), the tool will calculate the United States' overall stock valuation based on auto-updating data.

You only have to choose how to estimate the indicator:

• Corporate equities ÷ GDP (default): the Federal Reserve's quarterly estimate of the market value of all US corporate equities, over GDP. Still published and current.
• Wilshire 5000 (legacy): a multiplier on the Wilshire 5000 Price Index to estimate US market capitalization. We've kept this data in-house, but the free feed was discontinued. The series ends in 2024 and is here for historical comparison.

(Read the methodology section for information about how the two estimates are constructed.)

Once you choose a method (or are happy with the one that auto-loaded!), here are the statistics the tool will report:

• Current: The most recently quarterly reading of the Buffett Indicator, based on your choice
• Last Data Point: the quarter of the last observation in the tool
• Average: The average Buffett Indicator reading, using your preferences
• Median, Minimum, Maximum: The median, minimum, and maximum reading in the index, respectively

The Wilshire 5000 estimate is now based on an archived series, but if you wish to view it, you'll also see two more fields:

• Wilshire Estimated: The estimated Buffett Indicator based on the last closing date price in the tool.
• Last Close: The most recent Wilshire 5000 closing price in the tool's dataset.

The Buffett Indicator is a market valuation measure, also known as the stock market capitalization to Gross Domestic Product ratio. Others call it the Buffett yardstick instead.

It originated in a December 2001 interview with Carol Loomis, where Warren Buffett discussed his favorite way to quantify stock valuation on a macro level. Originally, he discussed dividing market capitalization by (the then-popular) Gross National Product.

Buffett went on to explain what various levels meant and that he expected ~7% returns at the time's 130% levels. On thresholds:

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.

-Warren Buffett, 2001 Interview for Fortune Magazine

Buffett Indicator Formula

The formula for the Buffett Indicator is:

Buffett\ Indicator=\frac{market\ capitalization}{gross\ domestic\ product}

If you're doing the math for the United States manually, there are a few ways to estimate the total market capitalization. The tool here has two methods built-in: it can use either Federal Reserve estimates or work with archived price index values on the Wilshire 5000 – more on that below in Methodology.

Tool Methodology

Depending on your preferences, the tool will use either of the following calculations or series for the numerator:

• Nonfinancial Corporate Business; Corporate Equities; Liability, Level plus Domestic Financial Sectors; Corporate Equities; Liability, Level from the Federal Reserve's Financial Accounts of the United States report
• The Wilshire 5000 "Full Cap" Price Index (multiplied by $1.15 billion – see Wilshire's note), using the last trading day of the quarter's closing price. This is the legacy method: we archive the Wilshire series in-house, but its free public feed was discontinued, so it stops in 2024 and is kept for historical comparison.

Whichever you choose is then divided by Gross Domestic Product for the United States, released by the Bureau of Economic Analysis. (Buffett originally used Gross National Product, but note the two track each other almost exactly. GNP measures only citizen output, whether overseas or in the US. )

The default corporate-equities series runs quarterly back to the first quarter of 1952 and refreshes with each Federal Reserve Financial Accounts (Z.1) release. The legacy Wilshire series runs from 1975 through 2024, where our archived data ends.

Questions About the Buffett Indicator

The Buffett Indicator is meant to be a quick temperature check on a market's valuation. It isn't a timing tool... it can only tell you how the market's general valuation compares to the historical norms. It doesn't say what's going to happen this week or even this year.

If the Buffett Indicator has utility, it's over a longer timeframe. In short: poor valuations can continue, and good valuations can get better.

Does the Buffet Indicator still work? Is it reliable?

The Buffett Indicator worked in the past as a broad predictor for future returns – over a long enough period. If you match up the data we have with the S&P 500 or Dow Jones (or other large measures), you'll see that it eventually 'corrected' to a new level.

Here's the catch, and it's a big one: over the decades the top and bottom of the fraction stopped measuring the same thing. The numerator is the value of US companies – but those companies now earn a big slice of their money abroad – at a rough cut, around a third or more of S&P 500 revenue comes from outside the United States. The denominator, GDP, only counts what's produced inside the country. So as the index went global, the ratio drifted higher all on its own, with no change in how 'expensive' stocks actually were.

The cast of companies changed, too. The market tilted away from capital-heavy industrials and toward asset-light, high-margin software businesses, and corporate profits have been taking a bigger bite of GDP than they did last century (I charted exactly that in my S&P 500 profit margin piece). More profit per dollar of domestic output ends up sitting in listed stocks – which, again, nudges the ratio up for reasons that have nothing to do with valuation.

Does all that add up to a new, permanently higher baseline? Maybe! Or, maybe it's borrowed time!

It's worth remembering that the trend behind those fat margins – software eating the world – might be turning over. The AI cycle is hungry for hardware, chips, and electrons; the grid and the data center suddenly matter again, and hardware tends to un-commoditize when everyone is scrambling for it. SaaS isn't the cutting edge this time around. If margins drift structurally lower from here, then the 'higher baseline' was never really a baseline at all.

The probable conclusion, though: Buffett's old rules of thumb – 70% is cheap, 200% is playing with fire – were calibrated on a market that doesn't quite exist anymore.

As with any indicator (the Shiller PE or CAPE, S&P 500 Price to Peak Earnings, S&P 500 Price to Sales Ratio, or Tobin's Q on the whole market), it's a useful input, not the whole story. There was a popular argument in the 2010s that rock-bottom interest rates justified the high reading – but rates shot up in 2022 and the ratio barely flinched, so that one didn't really pan out.

Of course, when an indicator is overextended, it is the most dangerous time to say, "this time is different." So – be safe and realize things change, but also know that stretched valuations can stay stretched far longer than feels reasonable.

Is your tool using the right computation for the indicator?

Probably not exactly, but it's a good guess at Buffett's original intent. Gross National Product has fallen out of favor, but GDP is a close substitute. As for the target levels, Buffett mentioned some benchmarks in his 2001 interview:

If the ratio approaches 200%--as it did in 1999 and a part of 2000--you are playing with fire.

Some people calculate the indicator with the Wilshire 5000 and no adjustment for the market cap ratio (~ $1.15 billion according to their web site). Other folks will use a Fed estimate but leave out financial corporations. Using these methods, you get ~ 188% and 165% in 1999-2000, respectively.

But really, it doesn't matter as long as your indicators are constant and the methodology doesn't change. You need a consistent look over many market conditions if – again, big if with the caveats – you're going to use the indicator as input.

What are good values for the Buffett Indicator?

Using the models in the tool and Buffett's historical comments here are some rough guidelines:

• 70-80%: Good valuation
• Up to 130%: Neutral valuation
• 200%: Bad valuation

Remember: these are rough levels with no guarantee to be true in the future, and they might not even be true in the present. If they apply, they will apply to a broad measure like the S&P 500.

Importantly: they would only apply for calculations similar to the ones in this tool. If you are using a different formula (especially in finding the numerator), scale Buffett's suggested values.