25.07.2025 22:21
US stock valuations have reached unprecedented heights, exceeding even the peaks observed during the dot-com bubble and the 2008 financial crisis. This alarming surge is confirmed by the "Warren Buffett Indicator," which currently stands at a record-breaking 212% of the US GDP. This metric, derived from comparing the total market capitalization of US stocks to the nation's GDP, paints a picture of extreme market exuberance.
The indicator's calculation utilizes the Wilshire 5000 Total Market Index, a comprehensive measure of the US equity market. The index's current market capitalization is more than double the nation's GDP, a stark reflection of the inflated valuations prevalent in the market. Buffett himself, in a 2001 Fortune Magazine interview, deemed this indicator "probably the best single measure of where valuations stand," warning that approaching a 200% ratio is akin to "playing with fire."
This historically high valuation has prompted a significant shift in Warren Buffett's investment strategy. Berkshire Hathaway, Buffett's firm, has been steadily divesting from US equities since the Trump administration, a move that strongly suggests the legendary investor is heeding his own warnings. This strategic retreat is evident in Berkshire's first-quarter 2025 actions, which included completely exiting its position in Citigroup (selling 14.6 million shares worth approximately $1 billion).
Furthermore, Berkshire significantly reduced its holdings in other major financial institutions, such as Bank of America (selling 48.7 million shares valued at roughly $2.19 billion) and Capital One (reducing its stake by over 300,000 shares for a value exceeding $46 million). The divestment extended beyond the financial sector; Berkshire also liquidated its entire stake in Nu Holdings, a Brazilian fintech company, for over $416 million, along with positions in companies like Charter Communications and DaVita. These actions represent a substantial shift in Berkshire Hathaway's portfolio and underscore the perceived risk associated with the current inflated market valuations.
