Wall Street is located in front of a bubble on the model of that of the Dotcoms, which broke out in the early years of the new millennium. Beyond the similarities – the rally has been driven by the technological sector and the market is in a hyper -mpate situation – the confirmation also comes from the so -called “buffett indicator”, named successful financier, now more than ninety years old, who theorized it.
The Buffett indicator over 200%
The Buffett indicator has jumped in the last period to 218%, exceeding the maximums of the Dotcom era and the Covid period, and attesting to a level that its author Warren Buffett, founder of the financial Berkshire Hathaway, believes that the market is “playing with fire”.
Buffett, in an article on Fortune of 2001, defined this indicator “the best single measure to measure the position of the assessments at a given moment”, adding precisely that the market was “playing with fire”, even if then the indicator had risen to 150%.
A level above 200% has not been seen even in the Covid era. Wall Street has never exceeded this threshold, not even on the occasion of the outbreak of the Dotcom bubble in 2000, when the indicator rises to 190%.
How it is calculated and what it means
The indicator measures the total value of the US share market compared to the gross national product, reporting when extreme evaluations are reached. It is obtained by dividing the value of the stock market, i.e. the sum of the capitalization of all the companies listed in a representative basket, for example the Wilshire 5000 index, for the Gross National Product of the United States.
An assessment around 70-80% means that there is still room to buy, while convenience is reduced to the growth of the indicator. Values that exceed 200% are extremely dangerous and indicate the high probability of bursting of a bubble, because the stock market is growing much faster than the real economy and no longer reflects the fundamentals.
The rally triggered by AI has unbalanced the S&P 500
The giants of technology, especially those who guide investments in artificial intelligence, have scored important rally, repeatedly touching new capitalization records, as in the case of Nvidia and the other “trillion dollar” stars of the American list. This led to a price/turnover ratio for the S&P 500 index.
Other indicators are also sending signs similar to the stock market. The price/turnover ratio of the ‘P 500 reached 3.33, a level completely out of the norm, since this index reached 3.27 during the Boom Post Covid and only 2.27 before the burst of the Dotcom bubble.
In reality, according to some experts, these indicators no longer have the value of the past, since the US economy depends much less on factories and heavy vehicles and more on technology, software and networks, therefore GDP data may not fully grasp this change. This led some to suggest that higher evaluations could be justified in an increasingly based economy on intellectual property.
In the buffett house everything is silent
Buffett has long remained in silence in the face of the exponential growth of the indicator who bears his name, but some of his most recent choices should make us reflect: the well -known American financier has accumulated a monstries in liquidity at over 344 billion dollars at the end of the second quarter and was a clear seller of actions for eleven consecutive quarters. A sign that fears a collapse of the market.
