Wall Street has a habit of partying hard right before the crash. Recent weeks felt like a 1990s déjà vu with indexes at record highs, valuations stretched beyond reason, and a handful of mega caps holding everything together. Investors talked about a “new era,” but history’s warning lights are flashing red.
From Robert Shiller‘s century-old valuation metric to Warren Buffett‘s favorite market-to-GDP gauge, the verdict is the same. Grayhair’s indicators are showing that this is one of the most expensive markets in history. AI hype brought a fresh punch bowl at the party, but the boom depends on an energy grid that’s already buckling.
Third Priciest On Record
The Shiller cyclically-adjusted price-to-earnings ratio (CAPE), created by Nobel laureate Robert Shiller, takes the past decade of inflation-adjusted earnings and smooths out recessions and short-lived shocks. Historically, it averages about 17. Today? Nearly 39 — among the highest readings in 150 years of data.
As of Wednesday, the Nasdaq traded at about 105% of the U.S. economy’s entire output — a first in history. Meanwhile, the Wilshire 5000, the broadest U.S. equity index, was valued at a record 212% of GDP. Buffett has long warned that anything above 140% is “playing with fire.”