January 18, 2026, 5:28 AM EST. Buffett's preferred yardstick, the market cap-to-GDP ratio known as the Buffett indicator, has risen to an all-time high near 224%, signaling stretched valuations. Buffett called it 'probably the best single measure of where valuations stand.' The metric totals the market value of all publicly traded U.S. companies and divides by GDP. A lower reading suggests bargains; the long-run average is about 8. Last year, Dow rose ~13%, S&P 500 ~16%, and Nasdaq ~20% as AI optimism and rate-cut prospects juiced sentiment. The indicator's extreme level serves as a caution: valuations can overshoot fundamentals in the near term, even as equities trend higher over decades. Investors should consider the metric's history and its limitations.