On June 4, Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator stood at 134.7%. Although it declined approximately 10% from its May 1 level of 144.4% and approximately 5% from its May 24 level of 139.9%, the ratio of total market cap to gross domestic product is still approximately 15% higher than the “significant overvaluation” threshold of 115%.
Dow attempts to rebound from late May tumble, closes over 500 points higher
The Dow Jones Industrial Average closed at 25,331.43, up 511.65 points from Monday’s close of 24,819.78. Top Berkshire holdings Apple Inc. (AAPL, Financial) and Goldman Sachs Group Inc. (GS, Financial) led the rally: Apple climbed 3.66% from its previous close of $173.30, while Goldman soared 3.65% from its previous close of $183.19.
CNBC columnist Fred Imbert listed several contributors to the Dow’s rally, including Federal Reserve Chairman Jerome Powell’s comments that the central bank is “open to easing monetary policy to save the economy.” Comments from China and Mexico also mitigated trade war tensions.
According to Imbert, the Chinese Commerce Ministry said while the “difference and frictions” between the U.S. and China should be dealt with through talks, the negotiations must be based on “mutual respect, equality and mutual benefit.” Likewise, Mexican Foreign Minister Marcelo Ebrard said Mexico still expects to find “common ground” on immigration and trade despite President Donald Trump’s tariff threats.
Market remains significantly overvalued
Despite the Dow’s surge, the Wilshire 5000 full-cap index stood at $28.37 trillion, approximately 134.7% higher than the last-reported U.S. gross domestic product of $21.06 trillion. Based on the current market level, the expected market return over the next eight years is approximately -1.3% per year. According to the predicted and actual returns chart, the expected return ranges from -9.10% in the most-pessimistic case to 3.60% in the most-optimistic case.
Value screeners continue identifying investing opportunities
As Table 1 illustrates, GuruFocus’ value screens continue to identify investing opportunities regardless of the market valuation level. The Undervalued-Predictable model portfolio and the Most Broadly Held model portfolio have outperformed the benchmark at least six times over the last seven years.
| Screener | USA | Asia | Europe | Canada | UK / Ireland | Oceania | Latin America | Africa | India |
| Graham Net-Net | 237 | 602 | 262 | 54 | 56 | 13 | 7 | 15 | 52 |
| Undervalued Predictable | 56 | 74 | 122 | 6 | 57 | 5 | 47 | 6 | 10 |
| Buffett-Munger | 38 | 92 | 78 | 4 | 34 | 0 | 27 | 6 | 50 |
| Magic Formula | 4403 | 13295 | 7083 | 532 | 2439 | 573 | 1099 | 384 | 3473 |
| Historical Low PS | 43 | 127 | 72 | 0 | 25 | 0 | 30 | 7 | 27 |
| Historical Low PB | 56 | 128 | 85 | 3 | 33 | 3 | 37 | 10 | 23 |
| Peter Lynch P/E | 37 | 67 | 58 | 1 | 30 | 0 | 6 | 2 | 11 |
| Peter Lynch P/S | 122 | 96 | 154 | 9 | 58 | 9 | 56 | 25 | 34 |
| Peter Lynch P/B | 161 | 129 | 181 | 27 | 90 | 9 | 42 | 25 | 53 |
| Peter Lynch P/Ebitda | 216 | 154 | 250 | 8 | 78 | 10 | 20 | 15 | 44 |
| 52-week Lows | 1627 | 3944 | 2358 | 157 | 619 | 121 | 445 | 168 | 992 |
| Three-year Lows | 768 | 2164 | 1175 | 93 | 321 | 47 | 184 | 88 | 603 |
| Five-year Lows | 543 | 1483 | 816 | 57 | 225 | 30 | 114 | 72 | 404 |
| 52-week Highs | 1517 | 1383 | 2383 | 219 | 1141 | 172 | 478 | 111 | 617 |
| Three-year Highs | 1177 | 653 | 1701 | 134 | 930 | 121 | 383 | 62 | 328 |
| Five-year Highs | 1063 | 512 | 1576 | 122 | 898 | 115 | 358 | 48 | 303 |
| High Dividend Yield | 67 | 45 | 150 | 7 | 15 | 12 | 27 | 7 | 6 |
Table 1
Premium members have access to our value screens, including the All-in-One Screener that allows you to screen using over 500 predefined and user-defined fields.
Disclosure: No positions.
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