.A stock market metric named after legendary investor Warren Buffett is flashing a warning sign.
By BEN SHIMKUS, US CONSUMER REPORTER and TILLY ARMSTRONG, US DEPUTY CONSUMER EDITOR
The Buffett Indicator — which compares the total value of US stocks to the country’s economic output — just hit a new record.
Buffett has said that a ratio of around 100 percent suggests fair value.
In other words, when the stock market is worth about as much as the US economy produces in a year, things are in balance.
But today, the gap is massive. The Buffett Indicator just climbed to 217 percent, meaning the market is more than twice the size of the economy.
For investors, that raises fears of a bubble — one that could be fueled by sky-high bets on artificial intelligence and future growth stories that won’t deliver big profits.
Meanwhile, the latest figures show that the US economy is still growing, but at a modest pace.
America’s gross domestic product, or GDP, grew at 3.8 percent from April through June. In the quarter before, it shrunk 0.6 percent.