The current US equity market could probably be described as significantly overvalued across several indicators. The Warren Buffett indicator, which measures the ratio of market capitalization to GDP, places US equities in the top 5% of historical valuations. In simpler terms, the price-to-sales ratio for US equities is elevated, indicating that the market is trading at a historically high premium.
US equities now account for approximately two-thirds of the world’s market capitalization, despite the US economy making up only 25% of global GDP and the US population constituting just 4% of the global total. This imbalance raises concerns about the sustainability of these valuations, as it is unrealistic to expect US businesses to continue generating such a disproportionate share of global corporate profits.
Shift from Equities to Bonds
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