Buffett Indicator (July-2025)
In brief
DeepValues Research, “Buffett Indicator (July-2025)” (Jul 1, 2025): ^1 Daily FRED data: 10-yr yield 4.26 % vs.
Source: https://research.deepvalues.ai/market/buffett-indicator-july-2025/ · Markdown
Contents
Snapshot as of Friday 27 June 2025
| Metric | Latest reading | Percentile vs. history | What it usually signals |
|---|---|---|---|
| Buffett Indicator (Total US Mkt Cap ÷ Nominal GDP) | ≈ 206 % (≈ $61.6 T / $30.0 T) | ~94-th percentile (1.9 σ above 1970-2024 trend) | Extreme over-valuation; 10-yr real returns historically < 2 % |
| Shiller CAPE (10-yr real PE) | 37.6 | 94-th percentile (only 1929 & 1998-2001 were higher) | Implied 10-yr real return ~2 %-3 % |
Sources: Wilshire 5000 close 61 629 (27 Jun 2025) (gurufocus.com, fred.stlouisfed.org); CAPE 37.65 (27 Jun 2025) (multpl.com).
How the two big gauges line up#
| Buffett Indicator | Shiller CAPE | |
|---|---|---|
| What it measures | Market value vs. size of the economy | Price vs. 10-year earnings power (inflation-adjusted) |
| Current takeaway | Stocks priced at ~2× the size of the economy-near dot-com extremes | Earnings multiple back at late-1990s highs despite slowing EPS growth |
| Overlap | Both capture broad-market exuberance; both say "expensive" | - |
| Where they differ | Buffett uses nominal GDP, so fast inflation can keep ratio in check; CAPE strips inflation out | CAPE less sensitive to nominal GDP swings but can stay elevated if yields are very low |
Other valuation & macro lenses#
| Indicator (27 Jun 2025 unless noted) | Reading | Historical context | Aligns with Buffett/CAPE? |
|---|---|---|---|
| Plain (trailing) PE | 29.4 (multpl.com) | 90-th percentile vs. 1960-2024 | Yes - expensive |
| Forward PE (Street EPS) | 21.3 (Yardeni, week of 24 Jun) (archive.yardeni.com) | Highest since Jan 2022 | Yes |
| Price-to-Sales (P/S) | 3.14 (multpl.com) | New record; long-run median ≈ 1.5 | Yes |
| Price-to-Book (P/B) | 5.24 (multpl.com) | All-time high | Yes |
| Equity-Risk Premium (ERP) | ~0 % (CAPE-based; Reuters) (reuters.com) | Lowest since 2000 tech bubble | Yes - stocks no longer compensate vs. bonds |
| Excess CAPE Yield | 1.25 % (1 Jun) (gurufocus.com) | Well below 20-yr average 3.3 % | Yes |
| Yield-Curve (3m-10y) | Still inverted (> -90 bp)^1 | Longest inversion since 1970s | Macro caution, supports lower future returns |
| Margin-Debt YoY | Flat (neutral) (currentmarketvaluation.com) | Not flashing extreme greed | Mixed - sentiment less frothy than 2021 |
| VIX, Junk-spread models (CMV) | Neutral (currentmarketvaluation.com) | Risk indicators complacent, not euphoric | Mixed - valuation rich, fear low |
^1 Daily FRED data: 10-yr yield 4.26 % vs. 3-m bill 4.39 % (26 Jun 2025) keeps spread negative. (fred.stlouisfed.org, fred.stlouisfed.org)
Reading the ensemble#
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Consensus message - stretched: Every price-based valuation yard-stick (Buffett, CAPE, P/S, P/B, forward & trailing PE) sits in the top decile of its own history, pointing to compressed long-run returns.
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Risk-premium drought: The equity-risk premium near zero means stock earnings yields barely cover Treasury yields - a setup that preceded the 1966-73 and 2000-02 bear markets.
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Macro divergence: While valuations scream "expensive," cyclical stress gauges (VIX, junk spreads, margin debt) are only neutral. That mixture often appears late-cycle: investors feel calm even as value is scarce.
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Yield-curve still warns: The 3 m-10 y inversion - a recession hit-rate > 80 % within 6-18 months - is the piece most consistent with high valuations eventually normalising via slower growth, not via an earnings boom.
Take-aways for investors#
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Lower forward return set: Both Buffett Indicator and CAPE currently map to 1 %-3 % real annual S&P 500 returns over the next decade, versus the post-1980 average ≈ 6½ %.
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Risk skewed "right-tail down, left-tail fatter." With the ERP at 0 % and yield curve inverted, any earnings stumble or policy shock could trigger a faster-than-normal repricing.
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Alternatives look comparatively fair:
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T-bills & TIPS (real 2.7 % on 30-yr TIPS) offer yields competitive with equity yields (barrons.com).
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Quality bonds may regain their hedge role if ERP mean-reverts via lower equity prices.
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What could invalidate the warning?
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Productivity renaissance (e.g., AI) lifting real earnings far above the CAPE denominator.
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Sustained disinflation and rate cuts that expand the "fair" multiple - but ERP would still need to rise.
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Bottom line: The Buffett Indicator and Shiller CAPE are singing in harmony - both at levels that historically precede anaemic 10-year returns and higher draw-down risk. Price-to-sales, price-to-book, and a vanishing equity-risk premium back them up. The main counter-point is a still-calm credit & volatility backdrop, but that calm typically breaks after valuations peak, not before.