Is the Stock Market in a Bubble? Here's What Warren Buffett's Own Indicator -- and His Cash Pile -- Are Telling Us.

On the surface, astir everything looks bully for the banal marketplace these days. Both the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) are adjacent all-time highs. Corporate net proceed to grow. The artificial quality (AI) roar remains a beardown tailwind.

However, galore investors person a nagging question: Is the banal marketplace successful a bubble? Warren Buffett, the antheral whose investing prowess earned him the nickname "the Oracle of Omaha," could person an answer.

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To beryllium sure, Buffett hasn't publically stated that helium believes the banal marketplace is successful a bubble. But the valuation indicator bearing his sanction and his Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) currency stockpile look to beryllium telling america that it is.

"Playing with fire"

Let's spell backmost to aboriginal 2000. A frenzy implicit the committedness of the Internet has driven the banal marketplace to grounds highs. Then the dot-com bubble burst, and the S&P 500 sank much than 40% implicit 2 years. The tech-heavy Nasdaq-100 plunged much than 80% from its peak.

Buffett wasn't taken by surprise. He explained successful a 2001 Fortune nonfiction that the ratio of the marketplace caps of each publically traded companies to U.S. gross nationalist merchandise (GNP) had reached "an unprecedented level" by precocious 1999 and aboriginal 2000. Buffett added, "That should person been a precise beardown informing signal."

This ratio became known arsenic the "Buffett indicator." Gross home merchandise (GDP), which measures economical output wrong the nation's borders, was swapped retired for GNP, which measures the economical output of its citizens everywhere.

Buffett expressed his presumption successful 2001 that if the indicator that bears his sanction approaches 200%, investors are "playing with fire." The valuation metric acceptable a grounds precocious successful precocious 2021, topping 190%. The banal marketplace entered a carnivore marketplace the pursuing year.

Today, the Buffett indicator stands astatine 236%. Investors could beryllium lasting successful the occurrence astatine that level if the "Oracle of Omaha" is right.

Money talks -- and a upland of wealth screams.

You won't perceive Buffett accidental overmuch astir the ratio of full banal marketplace headdress to GDP these days. However, helium has ne'er backed distant from his sentiment stated much than 2 decades ago.

What is talking, though, is the monolithic currency stockpile helium and his successor arsenic CEO, Greg Abel, person built for Berkshire Hathaway. The conglomerate's currency and short-term investments present full much than $397 cardinal -- the highest level successful Berkshire's past and the largest currency presumption of immoderate U.S. institution ever.