The Buffett Indicator, 1947 to Today
Warren Buffett once called this ratio "probably the best single measure of where valuations stand at any given moment." The measure is simple: take the total value of a country's publicly traded companies and divide it by the size of that country's economy.
The quarter-end value of US nonfinancial corporate equities as a percentage of annualised GDP. The Federal Reserve's Financial Accounts (Z.1) include publicly traded and closely held nonfinancial corporations. This coverage differs from a total-market stock index, so levels and movements can differ between constructions.
What the ratio compares
Market value is what investors will pay today for a claim on all future profits. GDP is the value of one year of economic output for an economy. Comparing the two is a coarse way of questioning whether the market's expectations have run ahead of the economy that has to deliver on them.
Traditionally, a high reading says the market is priced well above what the economy currently produces. A low reading says that overall the market may be underpricing future earnings based on current economic size. This trend hasn't held very well in the last 2 decades, for reasons explored in the post linked to at the bottom.
About this chart
The line is built from the Federal Reserve's Financial Accounts, which count all equity issued by non-financial corporate business, whether or not it trades on an exchange. That runs higher than versions built on a total-market index, so the level here will not match a figure quoted elsewhere. The trend over time is generally the same.
For why the ratio has spent twenty years climbing, and what that says about the thresholds Buffett quoted, see Why has the Buffett Indicator Been Rising for Twenty Years?