Warren Buffett Indicator Hits 205% Market Overvaluation

The Warren Buffett Indicator, a key metric used to gauge the valuation of the U.S. stock market, has surged to an unprecedented 205%. This figure surpasses the levels observed during both the Dot Com Bubble and the 2008 Financial Crisis, indicating an extreme level of market overvaluation. The total market capitalization of U.S. stocks now exceeds double the country’s GDP, marking the highest valuation on record.

This milestone was reached as trading commenced for the second half of 2025. Despite the alarming indicator, the market reaction was subdued. Stocks showed minimal movement, with the Dow Jones Industrial Average gaining 426 points, or 1%, while the S&P 500 remained relatively flat and the Nasdaq Composite dropped by 0.6%. The Dow’s movement was influenced by a shift in trading behavior, as investors moved away from tech giants like Microsoft and Nvidia, which had been significant winners in the second quarter, and into healthcare firms such as Amgen, Merck, and UnitedHealth, which saw gains of nearly 3%. Johnson & Johnson also added almost 2% to its value. The Technology Select Sector SPDR Fund, which had gained nearly 23% in the previous quarter, started the third quarter down by 1%.

This extreme overvaluation, as indicated by the Buffett Indicator, suggests that the market may be due for a correction. The indicator, which compares the total market capitalization of U.S. stocks to the country’s GDP, has historically been a reliable predictor of market bubbles. The current reading of 205% is a stark warning sign, as it indicates that the market is significantly overvalued relative to the underlying economic fundamentals.

Investors and analysts are closely monitoring the situation, as the market’s reaction to the overvaluation remains uncertain. While some may see this as an opportunity to sell and lock in profits, others may be holding their breath, hoping that the market will continue to defy gravity. The coming months will be crucial in determining whether the market can sustain its current levels or if a correction is imminent.