This is now surpassed by the dotcom balloon, according to the Buffett indicator

With the rise of U.S. stock indices, one of the simple metrics has made stocks more expensive than at the top of the dotcom balloons. This would be appropriate to caution investors.

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U.S. stock indices rose to another historic record last week, so that their valuation jumped to a level unparalleled at the peak of the dotcom balloons, according to a metric. Bloomberg. One of the favorite metrics used by billionaire investor Warren Buffett compares the total value of U.S. stocks to one year of U.S. GDP.

It now stands at 224 per cent, which is 84 per cent above the long-term average of the indicator, a difference of only 71 per cent before the 2000 burst of the Internet balloon. Of course, near-zero interest rates and fiscal stimulus packages adopted to restart the U.S. economy could further fuel the rise, but other indicators also suggest that equities have become highly overvalued historically.

According to the summary, the average price / earnings, price / revenue and price / book value ratios of US equities are currently above the peak in 2000.

However, the analysis notes that rising prices cannot predict when the market will peak. At the same time, U.S. government bond yields also started to rise, with the 10-year-old climbing to 1.2 percent on Friday, a record since the outbreak. At the same time, it should rise enough to undermine stock market prices, as the average dividend yield on the S&P 500 stock index is still at 3.1 percent.


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