Warren Buffett's favourite valuation indicator flashes buy signal
[NEW YORK] A key valuation metric touted by legendary investor Warren Buffett is signalling that equities are relatively cheap, bolstering the case that the sizzling rebound in US stocks has room to run.
The 'Buffett Indicator' measures the ratio of the total value of the US stock market via the Wilshire 5000 Index divided by the dollar value of US gross domestic product. It stands at its lowest level since early September – even after a bounce that has sent stocks screaming higher in recent weeks.
The 94-year-old chief executive of Berkshire Hathaway, which will hold its annual meeting in Omaha, Nebraska, this weekend, has said the 'single best measure of where valuations stand' was the ratio of the value of US publicly traded companies to the country's GDP. The indicator blared a warning late last year when it shot to a historic high, echoing similar signals sent during market peaks in 2021 and before the bursting of the dot-com bubble in 2000.
The measure is now at 180 per cent, around where it stood after an unwind of the Japanese yen carry trade sparked a brief but intense selloff last year. That stock-market rout cleared the path for a powerful S&P 500 Index rally in the closing months of 2024.
'This is a crucial indicator because it helps traders know when to deploy capital and buy stocks,' said Adam Sarhan, founder of 50 Park Investments, who has been piling into Big Tech stocks. 'There are reasons to still be concerned about the global trade war, but if Trump isn't playing hardball with tariffs, people are going to buy, buy, buy with valuations much more reasonably priced now.'
Valuation metrics of all types have taken on added significance this year, as investors try to determine if a tariff-fuelled sell-off has left stocks cheaper relative to their fundamentals. Those calculations are complicated by the S&P 500's 12 per cent bounce from its April lows, which has traders wondering whether to bet on momentum carrying the index further – or beef up hedges and place bearish bets on a trip back down. The index is still down nearly 9 per cent from its February record.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
In addition to the unpredictable twists of US President Donald Trump's trade war, investors are bracing for several more weeks of earnings season and next week's Federal Reserve meeting as potential catalysts that could determine the trajectory of stocks.
For its part, the indicator is still above levels it plumbed during past market bottoms, including the Covid-19 sell-off of early 2020, when it fell to nearly 100 per cent. Other commonly used valuation gauges tell a similar story: The S&P 500, for example, now sits at 20.6 times forward earnings, down about 8 per cent from earlier this year, though still above the 10-year average of 18.6 times.
Critics of the Buffett indicator argue that, among other things, the measure may ignore the effects of elevated interest rates. Higher borrowing costs can eat into company profits and weigh on stock prices. Some strategists also maintain that valuation is a poor tool for timing market moves, since assets can stay cheap or expensive for a long time before correcting.
That said, few investors would ignore a measured lauded by Buffett, who is famous for buying on the cheap. Traders are eagerly awaiting Berkshire's annual meeting on Saturday (May 3), in part to glean any clues on whether Buffett has dipped into the company's cash pile – last reported at a record US$321 billion – to take advantage of bargains in the market.
It may be one of the last meetings for Buffett, who told shareholders in the company's annual letter earlier this year that 'it won't be long before' a successor takes over as CEO, likely Berkshire's Greg Abel.
Buffett 'has always been a long-term investor', said Scott Colyer, CEO at Advisors Asset Management. 'It will be crucial to hear what he says about the economy and whether cheaper valuations indeed pushed him to deploy all that cash to buy stocks during the sell-off.' BLOOMBERG
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
an hour ago
- Business Times
Chinese carmakers vow to make timely supplier payments as backlash to price war grows
[SHANGHAI] Major Chinese car manufacturers have pledged to make payments to suppliers within 60 days, responding to a recent outcry from steelmakers over long payment times as well as regulatory pressure as the backlash to a punishing price war grows. Chinese authorities issued new rules in March that require big companies to settle most payments with suppliers within 60 days, which became effective June 1. However, suppliers had been worried that there were loopholes for the rules to be circumvented. Automakers issuing pledges on Wednesday (Jun 11) included BYD, Chery and state-owned automakers BAIC and SAIC as well as smaller players like Xpeng and Xiaomi. Chery in its statement, for example, said it would strive to speed up the turnover of capital in the supply chain. But like other automakers, it did not mention how much of an improvement this would represent. The pledges come after China's industry ministry summoned automakers to a meeting last week where they were told to put an end to the price war and excessive competition – factors which have put tremendous pressure on the industry's supply chain. Even so, the China Iron and Steel Association felt compelled to publish a statement on Tuesday that said steel companies were struggling with little profit margin and mounting liquidity pressure as some automakers have been asking for price cuts of more than 10 per cent since last year and delaying payments by months. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The association also asked Chinese automakers to learn from the steady and healthy partnerships that Japanese automakers have with their suppliers, which leave a certain amount of profit for suppliers and ensure product quality and innovation. Tension has been high in China's auto industry as the price war which began in early 2023 has shown little sign of abating. In May, Great Wall Motor chairman Wei Jianjun worried openly about the deepening price war. He even said that the industry had its own version of property developer Evergrande which was liquidated last year after a major debt crisis, although he did not mention a specific auto company. This month, Chinese auto dealers also complained, calling on automakers to stop offloading too many cars on dealerships, saying the intense price war was damaging their cash flow, driving down their profitability and forcing some to shut. Yang Hongze, chairman of Autolink, a supplier of intelligent vehicle technologies, said he welcomed the automakers' pledges. 'It is a pleasant but difficult change for the industry to move towards a healthy development and grow together,' he said. But he added he would like more clarity from automakers about whether payments would be made in cash or commercial paper, and what would be considered the start date for the 60-day period to pay. In their pledges, BAIC and SAIC vowed not to pay suppliers with commercial paper. It was not immediately clear from their statements how often they had used commercial paper as a form of payment. The companies did not immediately respond to Reuters requests for comment. Commercial paper has been commonly used in the property sector, popular among developers because it is not categorised as interest-bearing debt. It promises suppliers a payment on a future fixed date, usually within one year, though the suppliers sometimes sell the paper before maturity at a discount in the secondary market. REUTERS
Business Times
7 hours ago
- Business Times
Nintendo says sold record 3.5 million Switch 2 consoles in first four days
[TOKYO] Nintendo said on Wednesday it had sold a record 3.5 million Switch 2 units worldwide in the first four days after the console was launched. 'This is the highest global sales level for any Nintendo hardware within the first four days,' the Japanese video game giant said in a statement. Featuring a bigger screen and more processing power, the Switch 2 is an upgrade to Nintendo's blockbuster Switch console. It was released last Thursday to a global swell of fan excitement that included sold-out pre-orders and midnight store openings. Since its 2017 launch, the original Switch - which enjoyed a popularity boost during the pandemic with hit games such as Animal Crossing - has sold 152 million units. That makes it the third best-selling console of all time. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Analysts predicted last week that Nintendo could score record early sales with the Switch 2 -- but it remains to be seen if it can match the performance of its predecessor. Challenges for Nintendo include uncertainty over US trade tariffs and whether it can convince enough people to pay the high price for its new device. The Switch 2 costs US$449.99 in the United States, compared to a launch price of US$299.99 for the original Switch. Both are hybrid consoles which can connect to a TV or be played on the go. New games such as Donkey Kong Bananza and Mario Kart World - which allow players to go exploring off-grid - are also more expensive than existing Switch titles. Customers wait in line to purchase the Nintendo Switch 2 game console at a store in San Diego, California, June 4, 2025. PHOTO: BLOOMBERG Nintendo forecasts it will sell 15 million Switch 2 consoles in the current financial year, roughly equal to the original in the same period after its release. The Switch 2 'is priced relatively high' compared to its predecessor, so it 'will not be easy' to keep initial momentum going, the company's president Shuntaro Furukawa said at a financial results briefing in May. The Switch 2 has eight times the memory of the first Switch, and its controllers, which attach with magnets, can also be used like a desktop computer mouse. New functions allowing users to chat as they play online and temporarily share games with friends could also be a big draw for young audiences used to watching game streamers. Success is crucial for Nintendo: while the Super Mario maker is diversifying into theme parks and hit movies, around 90 per cent of its revenue still comes from the Switch business, analysts say. AFP

Straits Times
8 hours ago
- Straits Times
Nintendo sells record 3.5 million Switch 2 consoles in four days
The numbers, released by the company on June 11, bode well for its target to sell 15 million units by March 2026. PHOTO: AFP TOKYO - Nintendo sold 3.5 million-plus units of the Switch 2 in just four days, a record-breaking start for the company's first new console in eight years. The numbers, released by the company on June 11, bode well for its target to sell 15 million units by March 2026. They also reinforce analysts' projections that Nintendo may be able to sell far more if it can pump up supply. Catching up with runaway demand is the first major challenge Nintendo now faces. President Shuntaro Furukawa has apologized after customers came away from lotteries for the Switch 2 empty-handed. The company has asked its partners to speed up production of the console. It's also secured agreements from Japanese online marketplace operators such as Rakuten Group, Mercari and LY Corp. to discourage resellers from taking advantage of the hardware's scarcity. A chronic shortage may spur consumers to turn elsewhere and flatten momentum. Nintendo's priority is to sustain launch momentum for as long as possible, Mr Furukawa told analysts at an earnings briefing in May. That's more difficult due to the Switch 2's higher retail price compared with its predecessor and growing weakness in the global economy. Mr Furukawa has also warned the company may consider raising the console's price in the future, depending on US President Donald Trump's tariff measures. Nathan Naidu, technology analyst with Bloomberg Intelligence said Nintendo, Sony and Microsoft could be more affected than other gamemakers by tariffs because they also have hardware businesses. 'Prices for the Nintendo Switch 2 could still be hiked by 7-8 per cent for US buyers – 30 per cent in our worst scenario – despite the 90-day tariff 'truce,' our scenario shows, given the high US duties on the main production countries,' said Mr Naidu. BLOOMBRG Join ST's Telegram channel and get the latest breaking news delivered to you.