Buffett Valuation Indicator: May 2023 Update

Note: This update incorporates the Q1 GDP second estimate and the May close data. Please note that this update follows GDP releases, which always lag.


Market cap to GDP, also known as the "Buffett Indicator", is a long-term valuation indicator for stocks that 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." It is a measure of the total market value of all publicly-traded stocks in a country divided by the country's GDP and can be used as a way to assess whether the country's stock market is undervalued, fair valued, or overvalued.

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 1947, and the Fed's balance sheet has quarterly updates beginning in Q4 1951. 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, NCBEILQ027S, is the FRED designation for line 62 in the F.103 balance sheet of table S.5.q of the 'Integrated Macroeconomic Accounts for the United States' (market value of equities outstanding), available on the Federal Reserve website. Incidentally, the numerator is the same series used for a simple calculation of the Q Ratio valuation indicator.