What This Rare Historical Market Signal Means for Your Portfolio
Yahoo Finance ·
No one can really know what the stock market will do next, yet we still look for clues or signals. Given that the S&P 500 ( ^GSPC +0.00% ) has actually posted double-digit gains in six out of the last seven years, it's especially reasonable to wonder when the next market pullback will happen -- because it will happen, and we just don't know when. One measure some investors look to for a clue about future market moves is the "Buffett indicator" -- and it just hit an all-time high. Here's what that could mean for your portfolio. The Buffett indicator is a ratio -- dividing the total value of the U.S. stock market (as measured by, say, the FT Wilshire 5000 (SNPINDEX: ^W5000) index of the total U.S. market) by the size of the U.S. economy (as measured by our gross domestic product , or GDP). It's called the Buffett indicator because in a 2001 Fortune magazine essay, Warren Buffett referred to it, saying that: "If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work out very well for you. If the ratio approaches 200% -- as it did in 1999 and a part of 2000 -- you are playing with fire." Yikes!
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