Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett. Back in 2001 he remarked in a Fortune Magazine interview that “it is probably the best single measure of where valuations stand at any given moment.”

The four valuation indicators we track in our monthly valuation overview offer a long-term perspective of well over a century. The raw data for the “Buffett indicator” only goes back as far as the middle of the 20th century. Quarterly GDP dates from 1947, and the Fed's B.102 Balance sheet has quarterly updates beginning in Q4 1951. With an acknowledgement of this abbreviated timeframe, let's take a look at the plain vanilla quarterly ratio with no effort to interpolate monthly data.

The strange numerator in the chart title, MVEONWMVBSNNCB, is the FRED designation for Line 39 in the B.102 balance sheet (Market Value of Equities Outstanding), available on the federal reserve website. Here is a link to a FRED version of the chart through Q1 of this year. Incidentally, the numerator is the same series used for a simple calculation of the Q Ratio valuation indicator.

The Latest Data

The denominator in the charts below now includes the Advance Estimate of Q2 GDP. The latest numerator value is an extrapolation of the Fed's “Corporate Equities; Liability” using the Wilshire 5000 index quarterly growth. The indicator remains over 2 standard deviations above its mean at an interim high of 128.9%. Interestingly enough, our previous look at the Q1 ratio was even higher at 132.3%. But the BEA's latest annual revisions, which impacted the past twelve quarters of GDP, has showed generally slower economic growth than previously calculated.

Here is a more transparent alternate snapshot over a shorter timeframe using the Wilshire 5000 Full Cap Price Index divided by GDP. We've used the St. Louis Federal Reserve's FRED respository as the source for the stock index numerator (WILL5000PRFC).