On March 5, Warren Buffett (Trades, Portfolio)’s market indicator declined from its Feb. 5 value of 143.8% to 140.7%. Despite fears of global trade wars, the U.S. still has a significantly overvalued stock market.
Dow opened lower on continued global trade war fears
The Dow Jones international average opened about 100 points lower as investors “mulled over potential U.S. steel and aluminum tariffs,” according to CNBC.
While CNBC reporters Fred Imbert and Alexandra Gibbs said the Dow rebounded from the losses, the market , according to Chief Investment Strategist Ed Yardeni, can still decline if “President Trump turns into an outright protectionist.”
U.S. market remains significantly overvalued
The Wilshire 5000 currently stands at $27.76 trillion, approximately 140.7% higher than the latest gross domestic product of $19.7 trillion. Based on this valuation level, the average expected return of the U.S. stock market is about -1.80% for the next eight years assuming the Buffett indicator reverts to a mean of 80%.
The predicted actual returns chart also estimates the expected returns for an optimistic case (TMC/GDP = 1.2) and a pessimistic case (TMC/GDP = 0.4). Based on current valuation levels, the expected return of the U.S. stock market can range between -9.50% and 3.0%.
See also
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Disclosure: No positions.
