About

Famous investor Warren Buffett once termed the ratio of Total Market Capitalization to GDP as "probably the best single measure of where valuations stand at any given moment." This macroeconomic indicator provides a bird's-eye view of stock market valuation relative to the productive output of the economy. A high ratio suggests that stock prices have decoupled from economic reality (Overvalued), while a low ratio indicates potential buying opportunities (Undervalued).

Historically, the stock market trends toward the mean. When the valuation metric reaches extreme highs, market corrections often follow. Conversely, periods of low valuation have historically preceded long-term bull runs. This calculator allows investors to input current market data to gauge the temperature of the financial environment.

Formulas

The indicator is a simple ratio expressed as a percentage.

Buffett Indicator:

Total Market Cap (Wilshire 5000)Gross Domestic Product (GDP) × 100

Valuation Zones:

{

< 70% : Undervalued70% - 100% : Fair Value> 100% : Overvalued

Reference Data

Year	Ratio	Market State
2000 (Dot Com Peak)	140%	Extreme Overvaluation
2008 (Financial Crisis)	60%	Significant Undervaluation
2020 (Covid Crash)	195%	Historic High (Fed Stimulus)
1975 (Stagflation)	40%	Generationally Undervalued
1929 (Great Depression)	80-90%	Overvalued (for that era)

Frequently Asked Questions

Many economists argue that the "Fair Value" line has shifted upward due to globalization, higher profit margins, and low interest rates. A ratio of 120% might be the new "normal," but extreme deviations still signal risk.

Total Market Cap is often represented by the Wilshire 5000 index. GDP data is released quarterly by the Bureau of Economic Analysis (BEA) in the US, or the World Bank for global metrics.

Yes, the logic applies globally. However, some countries have varying market structures (e.g., Germany has many private companies, so its Market Cap/GDP is naturally lower). Always compare a country's current ratio to its own historical average.