This update incorporates the latest monthly close and the GDP Q1 Second Estimate data. Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett.

Back in he remarked in a Fortune Magazine interview that "it is probably the best single measure of where valuations stand at any given moment. The four valuation indicators we track in our monthly valuation overview offer a long-term perspective of well over a century.

The raw data for the "Buffett indicator" only goes back as far as the middle of the 20th century. Quarterly GDP dates from , and the Fed's balance sheet has quarterly updates beginning in Q4 With an acknowledgment of this abbreviated timeframe, let's take a look at the plain vanilla quarterly ratio with no effort to interpolate monthly data.

The strange numerator in the chart title, NCBEILQS , is the FRED designation for Line 41 in the B. Incidentally, the numerator is the same series used for a simple calculation of the Q Ratio valuation indicator.

The denominator in the charts below now includes the Second Estimate of Q1 GDP. The latest numerator value is extrapolated based on the quarterly change in the Wilshire The current reading is Here is a more transparent alternate snapshot over a shorter timeframe using the Wilshire Full Cap Price Index divided by GDP.

We've used the St. Louis Federal Reserve's FRED repository as the source for the stock index numerator WILLPRFC.

Market Cap to GDP: An Updated Look at the Buffett Valuation Indicator - dshort - Advisor Perspectives

The Wilshire Index is a more intuitive broad metric of the market than the Fed's rather esoteric "Nonfinancial corporate business; corporate equities; liability, Level".

This Buffett variant is also at its interim high.

Market Cap/GDP Ratios of 22 Nations | National Inflation Association

A quick technical note: To match the quarterly intervals of GDP, for the Wilshire data we've used the quarterly average of daily closes rather than quarterly closes slightly smoothing the volatility. The first chart above uses Fed data back to the middle of the last century for the numerator, the second uses the Wilshire , the data for which only goes back to The Wilshire is the more familiar numerator, but the Fed data gives us a longer timeframe. And those early decades, when the ratio was substantially lower, have definitely impacted the trend.

To illustrate the point, here is an overlay of the two versions over the same timeframe.

The one with the Fed numerator has a tad more upside volatility, but they're singing pretty much in harmony. Incidentally, the Fed's estimate for Nonfinancial Corporate Business; Corporate Equities; Liability is the broader of the two numerators.

The Wilshire currently consists of fewer than companies. A conspicuous feature of the Buffett indicator is the upward trend over the decades since the start of the data series. For a better sense of valuation over time, let's detrend the data by letting Excel draw a regression through the series and eliminating the upward trend. First, let's draw the regression through the series.

Market Cap to GDP: An Updated Look at the Buffett Valuation Indicator - dshort - Advisor Perspectives

The Latest Look at Long-Term Market Performance. That is another question we've been asked many times. Here is the same calculation with Gross National Product as the denominator; the two versions differ very little from their Gross Domestic Product counterparts. In a February 27 interview with CNBC , Warren Buffet expressed his view that the stock market is "on the cheap side".

His opinion seems to imply that buying into the market is inexpensive. However, both the "Buffett Index" and the Wilshire variant suggest that today's market remains at lofty valuations — similar to the housing-bubble peak in , although off its interim high in Q1 of Buffet's claim is merely referring to the fact that compared to other investment opportunities, such as fixed income, you'll get more bang for your buck in the stock market.

A question we're repeatedly asked is why we don't include the "Buffett Indicator" in the overlay of the four valuation indicators updated monthly. We've not included it for various reasons: The timeframe is so much shorter, the overlapping timeframe tells the same story, and the four-version overlay is about as visually "busy" as we're comfortable graphing.

Market Cap to GDP: The Latest Data The denominator in the charts below now includes the Second Estimate of Q1 GDP. How Well do the Two Views Match? Market Timing Equities Stock Stocks Income Fixed Income.

| Global Market Cap to GDP (GNI) by Country'|icoqerum.web.fc2.com

Week Month Year Trending. What Do We Know about Investor Irrationality? Small-Cap Mining Stocks, Big-Time Opportunity by Frank Holmes of U. Why the Future is Bright for AUM-Based Advisors by J.

Jeremy Siegel — Why Long-term Investors Should Own Stocks: A Warning to the Advisory Profession: What Could Go Wrong? Subscribe Newsletters Advertise Submissions About Us Privacy Contact Us.