Good morning. A closely watched valuation gauge championed by Warren Buffett is signaling potential trouble in today’s market.
In a new Fortune article, my colleague Shawn Tully discusses the metric—the Buffett Indicator. It is the ratio of total U.S. stock market capitalization to GDP. It has become one of the most closely watched valuation gauges on Wall Street since Buffett explained its logic in a landmark 2001 Fortune article, according to Tully. Buffett was writing at a time when the dot-com bubble was deflating. The premise is straightforward: when the ratio climbs too high, stocks are expensive relative to the underlying economy; when it falls, opportunity often follows.
