Warren Buffett’s Favorite Stock Market Indicator Says Time to Buy

Warren Buffett’s favorite gauge of stock market valuations has pulled back, indicating to investors that it might be time to buy after a month of wild volatility in April.

This Buffett Indicator — which was coined by the legendary investor in 2001 and which measures the total market capitalization of US stocks relative to US GDP — has been dropping, indicating that the market’s current rebound could translate into a more durable rally.

Buffett has previously warned of danger if the gauge ever climbed past 200%, which it did in late 2024. By December, it was breaching all-time highs and touching levels it reached during the pandemic market craze and the dot-com bubble.

But it’s recently declined to around 180%. To be sure, that’s still elevated, and well above lows associated with past market bottoms. The gauge fell close to 100% during the pandemic sell-off in 2020.

Still, the latest drop could help assuage investors’ anxiety in the wake of April’s market upheaval sparked by tariffs. President Donald Trump’s trade war sent the market tumbling in a historic rout, with the S&P 500 briefly dipping into bear market territory before Trump relented and paused the reciprocal duties.

Following some strong tech earnings and encouraging data, the S&P 500 on Friday was headed for a nine-day winning streak. However, Wall Street analysts are debating whether any rally can really last without concrete trade deals announced by the White House.

Otherwise, Morgan Stanley expects the index to remain range-bound until the Federal Reserve cuts rates, earnings revisions improve, and Treasury bond yields ease.

Berkshire Hathaway ended 2024 with a record $334 billion in cash, shielding it from much of the tariff damage. Many of Buffett’s favorite stocks are beating the market this year and shares of the conglomerate are up 17% this year.

This weekend, investors will flock to Omaha, Nebraska, to hear him speak at Berkshire’s annual meeting.