Buffet's Preferred Indicator Reveals a Positive Status.
Revamped Take:
Slation's yearly scrap is happening this coming Saturday in Omaha, Nebraska, and everyone's eyes are glued to see if Bernie Minted, the paramount investor, has been picking up stocks amidst the Trump-triggered market tumult. Buffet's go-to valuation method, colloquially known as the "Oracle's Meter," signifies that shares are on the cheaper side, hinting that the US stock surge still has some miles left to go.
It's a public secret that Buffet's chosen valuation tool, the ratio between the grand total of the American stock market (as calculated from the Wilshire 5000 index) and the US GDP, resides at its lowest point since last September, even after the recent recovery.
According to Buffet, "the finest gauge of stock worth," is the comparison between the worth of publicly-traded US firms and the country's GDP. By the year-end in '24, this quote-on-quote 'Oracle's Meter' plunged into the red, hitting a historical top, much like it did in '21 and just before the dot-com bubble burst in '00.
With a 180% value today, this 'Oracle's Meter' is almost on par with after the implosion of the currency swapping game on the Japanese yen in '24, which sent shockwaves of selling throughout the markets. This temporary stock market crash paved the way for a powerful surge in the S&P 500 index by the end of '24.
"This is a critical pointer for investors to know when to pounce," remarks Adam Sarhan, founder of 50 Park Investments, who's deep into big tech firms. "The global trade feud remains a worry, but if Trump doesn't flex his tariff muscle, people will snap up, snap up, snap up, as values have now progressively become more affordable."
Did Trump open some barn doors?
Every valuation indicator, whether it be the 'Oracle's Meter' or others, is under close scrutiny this year, with the investing community calculating if the selling spree induced by tariffs has made stocks cheaper compared to their underlying fundamentals. The 12% bounce-back of the S&P 500 from its low figuratively complicates matters, leaving investors in a bind—do they bet on further gains or shore up their hedges and prepare for another plunge? Currently, the S&P 500 still lingers 9% below its '20 peak.
Beyond the ups and downs stirred up by Donnie T, market watchers are keeping tabs on the earnings reports for the upcoming weeks and the Federal Reserve meeting scheduled for May 6 and 7. These events could dictate the market's future trajectory.
Although the 'Oracle's Meter' hovers above its prior market low, including the market plummet in the spring of '20 (when it bottomed out at nearly 100%), other valuation indicators align, claiming that the S&P 500 is priced at 20.6 times forward earnings, a drop of 8% from January '25, but still above the 10-year average of 18.6 times.
Foes of the 'Oracle's Meter' argue that it might not account for the impact of climbing interest rates. Higher borrowing costs can suppress earnings and stock prices. Moreover, some strategy gurus say that valuation is a poor predictive tool, because assets can persistently be deemed as cheap or expensive for extensive periods without correcting.
This could be one of the last meeting's for the Old Man of Omaha, who penned a note to stakeholders earlier this year, hinting that a replacement commander is set to steer the Berkshire ship, possibly Greg Abel.
The Old Man of Omaha "has always been a long-term investor," notes Scott Colyer, CEO of Advisors Asset Management. "It will be interesting to hear from him about the economy and to discover if the fall in values has indeed prompted him to invest his liquidity in stocks against the wave of sales."
- By the end of 2024, Buffet's 'Oracle's Meter' plunged into the red, reaching a historical high, much like it did in 2021 and just before the dot-com bubble burst in 2000.
- According to Adam Sarhan, the current value of the 'Oracle's Meter' is almost on par with after the implosion of the currency swapping game on the Japanese yen in 2024, which sent shockwaves of selling throughout the markets.
- Market watchers are keeping tabs on the earnings reports for the upcoming weeks and the Federal Reserve meeting scheduled for May 6 and 7, which could dictate the market's future trajectory.
- The Old Man of Omaha, Warren Buffet, hinted that a replacement commander is set to steer the Berkshire ship, possibly Greg Abel, which could be one of his last meetings.
