The 'Buffett indicator' is a red flag for markets, but 'this is not a bubble,' says investing pro
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The 'Buffett indicator' compares the total market capitalization of all U.S. stocks with the quarterly output of the U.S. economy. If stocks are at about 70% of GDP, they're undervalued, but if they're about double the size of the economy, it's considered a major red flag. Currently, the ratio is at about 190%, the highest mark in two years. However, Liz Young, head of investment strategy at SoFi, believes that this is not a bubble and that the market is in extended valuations but not outrageous. The current stock market rally has been driven by earnings growth, particularly from large, high-quality tech companies. GDP growth remains strong, the consumer continues to spend, and earnings growth has been healthy. However, there are some cracks in the economic façade, such as the longest-ever inversion of the yield curve and a marked uptick in gold prices, which indicate that some investors are losing confidence in the economy. The stock market outlook for the remainder of the year is more bullish, but investors should expect some pullbacks. Diversified stock portfolios will continue to benefit from corporate earnings growth and U.S. economic output. It is recommended to focus on highly profitable companies with little debt.

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https://www.cnbc.com/2024/04/09/what-warren-buffetts-favorite-indicator-means-for-your-money.html