Warren Buffett Indicator Hits Post-Dot Com Bubble High, Signaling Stock Overvaluation

The Warren Buffett Indicator, which compares the total value of U.S. stocks to GDP, has surged to levels last seen during the DOT Com Bubble. At 68.63% above its long-term average, the metric suggests equities are significantly overvalued relative to economic output.

Market valuations now sit 2.2 standard deviations above trend, mirroring the 190% peak reached in 2000. While the indicator measures relative size rather than absolute value, such extremes historically precede market corrections.

Interest rate dynamics complicate the picture. With the 10-Year Treasury yield currently below its 50-year average of 5.83%, the equity risk premium remains attractive compared to the 6.5% bond yields available during the Dot Com era. This monetary policy backdrop continues to support stock valuations despite macroeconomic warnings.