The Buffett Indicator measures whether the US stock market is expensive or cheap relative to the size of the economy by dividing total market capitalization by GDP. Warren Buffett has called it “probably the best single measure of where valuations stand at any given moment.”

When the ratio is high, it suggests stocks are overpriced. When it’s low, the market may be undervalued. Historically it has ranged from 40% to 180%. The average line shows the historical mean—use it as a reference point to see if current valuations are above or below the norm.

Data Source: U.S. Federal Reserve Economic Data (FRED)

• Numerator: Nonfinancial Corporate Business; Corporate Equities (NCBEILQ027S)
• Denominator: Gross Domestic Product (GDP)
• Frequency: Quarterly