Buffett index warns of stock market collapse

The legendary billionaire investor Warren Buffett’s favorite indicator raises the alarm. In the early 2000s, this indicator exceeded the peak of the dot-com bubble. U.S. stocks continue to update record levels in history. Vaccination against coronavirus is gaining momentum, reinforcing optimism about the recovery of the global economy. Meanwhile, an indicator reflecting the ratio of the capitalization of the U.S. stock exchange to the GDP of the country – approached 200% and broke with the long-term trend of a record 84%, writes ProFinance in relation to Bloomberg.

In such times comes to mind the famous statement of legendary billionaire investor Warren Buffett that you should be careful when everyone around you is covered in greed. The Buffett index isn’t the only indicator that literally calls for an overvaluation of the U.S. stock market.

Other indicators such as P/E (ratio of company capitalisation to net profit for the year), P/S (ratio of the company’s capitalisation to its annual revenues) and the ratio of the company’s capitalisation to book value are also record.

“A good correction is clearly overdue in the markets. At the same time, investors should remember that despite the very tangible chances of a short-term correction, (printing press and pandemic weakness) work for the benefit of the market, so too hastily bet on a multi-year bear market. To implement such an ultra-fast scenario, it is not only necessary to wait for the failure of the 200-day average, which is 10-15% lower than current levels, but also for governments and central banks to remain closed with such volatility,” notes fxpro’s team of analysts.