Market Cap to GDP Ratio is a long-term valuation indicator for stocks. It has become popular in recent years, thanks to Warren Buffett.
Back in 2001 he remarked in a Fortune Magazine interview that “it is probably the best single measure of where valuations stand at any given moment.”
The Wilshire 5000 Index is widely accepted as the definitive benchmark for the U.S. equity market and is intended to measure the total market capitalization of most publicly traded companies headquartered in the United States.
The chart below is that of the Wilshire 5000:
The S&P 500 to GDP Ratio
For comparison purposes, the S&P 500 to GDP ratio is shown below as well. The S&P 500 consists of 500 large US companies. Just like the Market Cap to GDP Ratio and is a capitalization-weighted index.
It captures approximately 80% of the available total market capitalization. For these reasons, it’s a much better measure for ‘market cap’ than the Dow Jones – however, the two charts look very similar.
The charts clearly illustrate that the total US Markets are well above their 2000, 2008 and although we have a bit to go, we are quickly reaching the 1929 bubble. Thus, it is safe to assume we are in Market Cap to GDP bubble territory.
Over the next few weeks, we will show you a few more charts that are a bit concerning. Our Wealth Preserver members are protected just in case the Unthinkable occurs.