Warren Buffett’s favorite market indicator is flashing red

The “Buffett Indicator” is flashing red.

In 2001, Warren Buffett came up with what he called in Fortune Magazine “probably the best single measure of where [stock] valuations stand at any given moment.”

Today that barometer has soared to a two-year high, signaling that a market retreat could be coming.

What’s happening: Widely known as the “Buffett Indicator,” it measures the size of the US stock market against the size of the economy by taking the total value of all publicly traded companies (measured using the Wilshire 5000 index) and dividing that by the last quarterly estimate for gross domestic product.

 

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