What it is
US Buffett indicator: what is measured, and why it matters
What it measures
The total market value of US companies’ shares ÷ one year of GDP (quarterly); compared with its own 10-year average, because the ratio has trended up over the decades.
Why it matters
The stock market’s size relative to the whole economy: well above normal means share prices have risen much faster than the economy.
Compared with its own 10-year average: the ratio has trended up over the decades.
Where it stands now
Position over time
coldcoolneutralwarmhotHatched = earlier periods that were also hot
When it was here before
Earlier hot periods (8), plus the current one
US stocks after it began, cumulative1 yr2 yr3 yr
- Q2 19831-quarter period, hot throughout1 yr−0.1%2 yr+14.5%3 yr+50.9%
- Q1 1986–Q3 19877-quarter period, hot in 6 of those quarters · 1987 Black Monday1 yr+27.0%2 yr+20.3%3 yr+37.1%
- Q2 1989–Q4 19893-quarter period, hot throughout1 yr+11.9%2 yr+25.6%3 yr+34.8%
- Q1 1991–Q4 200040-quarter period, hot in 38 of those quarters · 2000 Dot-com bubble1 yr+27.8%2 yr+33.7%3 yr+45.3%
- Q4 2013–Q2 20157-quarter period, hot throughout1 yr+12.6%2 yr+17.7%3 yr+24.6%
- Q3 2017–Q3 20185-quarter period, hot in 4 of those quarters · 2018 February stock sell-off1 yr+13.8%2 yr+22.1%3 yr+30.7%
- Q2 2020–Q1 20228-quarter period, hot throughout · 2020 Covid outbreak1 yr+49.9%2 yr+59.0%3 yr+49.2%
- Q3 2025–Q2 20264-quarter period, hot in 3 of those quarters1 yr+18.8%2 yrnot yet3 yrnot yet
For each period, the changes 1, 2 and 3 years after it began are cumulative and measured from its first month; “What happened next” is measured from every hot month, so the two give different numbers. The events named beside each period are major events of that time, not necessarily related to the readings here.
What happened next
How US stocks moved after earlier months with US Buffett indicator hot
Bars: median cumulative changeEarlier quarters with US Buffett indicator hot, excluding the current period (70)All quarters (221)
Median of the deepest drop below the starting month within the next 5 years: −0.6% for months with US Buffett indicator hot; −6.0% for all months.
The hot months come from a small number of market episodes (8), and neighboring months are not independent events; rises and falls are all listed. This is the historical record, not a forecast. “US stocks” means the S&P 500 price index compiled by Professor Shiller (monthly average, excluding dividends).
Where US Buffett indicator went next
| Median position | Back to neutral (40–60) | Still hot or more extreme | |
|---|---|---|---|
| 1 yr later | 89hot | 13% | 63% |
| 3 yr later | 82hot | 10% | 55% |
| 5 yr later | 77warm | 19% | 45% |
Has hot or cold lined up with later returns?
No clear link in the past
1971–2021: average yearly change in US stocks over the next 5 years
There is no clear relationship between hot or cold and what came next. The gaps between the bars are not consistent across months (rank correlation below 0.25); this is a record of the past, not a forecast.
What it is linked to
Links involving US Buffett indicator
No tested links currently involve this indicator.
Values
Values over time
Data and sources
Where the data come from and how they are calculated
- Source
- Federal Reserve Z.1 (nonfinancial corporate equities) and BEA GDP, via FRED (St. Louis Fed); public domain
- Frequency
- Quarterly
- Positions start
- Q2 1971
- Method
- Ratio: this month ÷ the 10-year average; position = the percentile of this ratio within its own history
- Unit
- % (equity value / GDP)
- License
- Open license, with attribution