The U.S. stock market remained significantly overvalued June 29, with Warren Buffett (Trades, Portfolio)’s market indicator reaching 133.2%. The high market valuation is partially driven by the deceleration of U.S. gross domestic product during the first quarter.
The Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO measures the total market valuation as the ratio of the Wilshire 5000 index to U.S. GDP. As of July 29, the index reached $25.35 trillion, approximately 133.2% of the last-reported GDP of $19.03 trillion. Based on the current market valuation, the U.S. stock market is expected to return -1.1% per year including dividends.
Since May, Robert Shiller’s cyclically-adjusted price-earnings ratio averaged 30, representing a new high since the 2008 financial crisis. The market Shiller P/E ratio is driven by significantly high ratios in the telecom, technology and real estate sectors, which are 29.8, 32.7 and 48.7 as of June 29. Based on the Shiller P/E valuation, the implied annual market return is about -2%.