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Market valuation tool · Updated through the trading day
The total value of every U.S. stock divided by the size of the U.S. economy. One number that shows whether stocks are cheap or expensive compared with everything the country produces in a year.
“Probably the best single measure of where valuations stand at any given moment.” Warren Buffett, Fortune, 2001
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The big picture
Each point is one month. Red marks the peaks before a crash, green the lows that followed. Hover or tap the line for any month.
The ratio compares the market value of every U.S. public company, measured by the Wilshire 5000 index, with the country's annual economic output, its gross domestic product. Over long periods, company profits and economic output grow at similar rates, so stock prices that run far ahead of GDP mean investors are paying more for the same underlying economy.
A reading of 100% means the stock market is worth exactly one year of everything the U.S. produces.
In a 2001 Fortune article written after the dot-com crash, Buffett called market value relative to GNP probably the best single measure of where valuations stand at any given moment. His point was simple: buying stocks when the ratio is low has historically set investors up for strong long-term returns, and buying when it is very high has not.
For long-term savers, the price paid at the start does much of the work. The indicator is a way to see that price for the market as a whole.
The indicator is not a timing tool. Markets can stay expensive for years, and the ratio passed its 2000 peak in 2017 and kept rising. Some analysts argue it now runs structurally higher than in the past, because large U.S. companies earn a growing share of their profits overseas and interest rates were low for much of the last two decades.
What it does tell you is how much optimism is already built into prices, and how much room there is for disappointment.
When stock valuations are stretched, many retirement savers look for assets that do not depend on corporate earnings or on the same market staying high. Physical gold has no counterparty and has often moved differently from stocks, which is why some investors hold a portion of their savings in it through a Gold IRA.
Our free guide explains how a Gold IRA works, which coins and bars qualify, and how a rollover from a 401(k) or IRA is handled.
We divide the total market capitalization of U.S. stocks, measured by the Wilshire 5000 Total Market Index, by the latest quarterly GDP from the Bureau of Economic Analysis, stated at an annual rate. This is the definition Warren Buffett described, and the one most published versions of the indicator use. The figure updates every hour through the trading day and uses the closing level after the close. GDP changes once a quarter, so the day-to-day movement comes from the stock market. The 1929 figure is a widely cited historical estimate made with a different method, because the Wilshire index begins in the 1970s and monthly data runs from 1989, so it is not shown on the chart.
For educational purposes only. Advantage Gold is not a registered investment adviser, and nothing on this page is investment, tax or legal advice. Valuation measures do not predict short-term market moves, past performance does not guarantee future results, and precious metals involve risk. Please consult your own financial professional before making any investment decision.
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Free investment guide
Rollovers, eligible coins, storage and fees, all explained in plain English. Free, with no obligation.