Warren Buffett's Market Indicator Eclipses 180% in December

GuruFocus.com
·3 min read

- By James Li

On Wednesday, Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio)'s market indicator topped 180% and neared its all-time high as investors monitored progress on Covid-19 vaccines and stimulus bill negotiations.


The ratio of total market cap to gross domestic product stood at 180.7%, up 5.9% from the Nov. 2 reading of 174.8%. The "Oracle of Omaha" said that the ratio is probably the best single measure of where valuations stand at any given moment.

Warren Buffett's Market Indicator Eclipses 180% in December
Warren Buffett's Market Indicator Eclipses 180% in December

U.S. markets close at record highs on coronavirus vaccine and stimulus bill progress

The U.K. government said it authorized the joint Covid-19 vaccine from Pfizer Inc. (NYSE:PFE) and BioNTech SE (NASDAQ:BNTX), planning to roll out the vaccine first to medical workers and elderly people in care homes. The two drug manufacturers said in November that their candidate vaccine prevented, with an over 90% effective rate, the coronavirus in trial patients. Pfizer and BioNTech also applied for authorizations for vaccine use in the U.S. and Europe.

Berkshire purchased 3,711,780 shares of Pfizer during the third quarter, with shares averaging $36.91. With shares closing at $40.80, the insurance conglomerate's equity portfolio is gaining approximately 10.54% on the stock based on GuruFocus estimates.

Stocks also rallied on the back of House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer's comments that the $908 billion stimulus bill unveiled on Tuesday should be used as "basis for immediate bipartisan, bicameral negotiations" according to CNBC sources.

Stocks remain overvalued based on Buffett's market indicator

Despite strong news regarding its Covid-19 vaccine, Pfizer is trading at a modestly overvalued level based on its price-to-GF Value ratio of 1.20.

Warren Buffett's Market Indicator Eclipses 180% in December
Warren Buffett's Market Indicator Eclipses 180% in December

The Wilshire 5000 full-cap price index stands at $38.223 trillion, approximately 1.807 times greater than the latest-reported U.S. gross domestic product of $21.157 trillion. Based on this market valuation level, the implied market return over the next eight years is -2.2% per year, assuming a reversion to the 20-year median market valuation level.

Warren Buffett's Market Indicator Eclipses 180% in December
Warren Buffett's Market Indicator Eclipses 180% in December

According to the predicted and actual returns chart, the implied market return ranges from -6.2% per year, assuming a reversion to a market valuation level at 70% of the 20-year average, to 0.9% per year, assuming a reversion to a market valuation level at 130% of the 20-year average.

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Disclosure: Long Apple.

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This article first appeared on GuruFocus.