The so-called Buffett Indicator, which compares the total value of the US stock market with the country’s gross domestic product, has climbed to a record level of over 220 per cent. The surge suggests that American equities are extremely expensive, yet Laurens Swinkels, Associate Professor at Erasmus School of Economics and Director at Robeco, argues the measure remains a valuable tool, despite its shortcomings.
‘The Buffett Indicator has the advantage of being simple and intuitive,’ Swinkels says. In his view, a rising ratio shows that share prices are increasingly detached from economic output. ‘If corporate profits represent a fairly stable share of GDP, then faster-rising stock prices mean investors are valuing future earnings more expensively. That results in lower expected returns going forward.’
Swinkels acknowledges that factors such as prolonged low interest rates, growing foreign profits and enthusiasm around new technologies like artificial intelligence can distort the indicator. Nevertheless, he continues to use it in long-term return forecasts. ‘For us, it remains a useful warning light for expensive equity markets and weaker future performance.’
Recent research by Swinkels across 14 developed countries also supports the indicator’s predictive power. Historically, high readings have tended to precede disappointing stock market returns, while low levels were often followed by above-average gains.
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On 28 January 2026, the Flemish business newspaper De Tijd published the article above in which Laurens Swinkels extensively addresses the question of whether the Buffett indicator has lost its relevance after 25 years. For more information, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, +31 6 53 641 846.
