With the S&P 500 trading above 6,200 points and U.S. equities cruising into the July 4 holiday at all-time highs, long-term valuation metrics are sounding alarms.
The so-called Buffett Indicator, a popular long-term valuation tool among traditional investors, has surged to its most extreme reading ever.
Yet, that doesn’t mean it’s time to panic and dump your stocks overnight.
What Is The Buffett Indicator?
Named after Berkshire Hathaway’s Warren Buffett, the indicator measures the total value of the U.S. stock market relative to the country’s gross domestic product.
It provides a broad snapshot of how inflated equities may be versus the actual size of the economy.
As a legendary investor, Buffett helped popularize the indicator by endorsing it as a key gauge of stock market valuations. In a 2001 interview, he called it “probably the best single measure of where valuations stand at any given moment.”
As of July 3, the indicator shows a 207% ratio between the total U.S. stock market value and gross domestic product (GDP), …