On Monday, Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator stood at 123.5%, approximately 10.4% higher than the July 5 reading of 113.1% and approximately 1.1% higher than the June 1 reading of 122.4%.
Dow slips to begin August as investors monitor high Treasury yields
The Dow Jones Industrial Average closed at 32,794.80, down 46.73 points from last Friday’s close of 32,845.13.
Stocks dipped as investors continued monitoring high Treasury yields: The one-year yield stood at 2.99%, while the two-year yield stood at 2.91%.
Additionally, the two-year yield remains above the 10-year yield. An inverted yield curve has predicted some of the past few recessions.
The dip comes after the U.S. market reported in July its highest monthly gain in the past few years. According to the Aggregated Statistics Chart, a Premium feature, the mean one-month total return for the Standard & Poor’s 500 index stocks is 7.27% with a median of 6.60%.
Buffett indicator indicates overvalued stock market
The ratio of total market cap to the sum of gross domestic product and total Federal Reserve Bank assets stands at 123.5%, compared to the 20-year median level of 93.39%.
Based on the current market valuation level, the implied market return is approximately 1.7% per year assuming that market valuations reverse to the 20-year median.
GuruFocus tracks other market valuation metrics
The website also tracks several other market valuation metrics, including the Shiller price-earnings ratio and the GF Value.
Yale Professor Robert Shiller measures market valuations based on a cyclically-adjusted price-earnings ratio over the past 10 years. Based on Shiller’s valuation metric, the implied return is -2.2% per year assuming that the valuation reverses from the current value of 31.1 to the 20-year median value of 25.9.
GuruFocus also developed a GF Value calculation for the S&P 500 according to the index’s historical valuations and internal adjustments for past performance and future growth estimates. As of Monday, the S&P 500 is fairly valued based on a price-to-GF Value ratio of 0.97.
