Image source: Getty Images <\/p>\n
The US stock market is showing signs of an unstoppable bull run, or a potential crash. The challenge is deciding which is more likely.<\/p>\n
If any individual stock can sum up the dilemma, it has to be Tesla<\/strong> (NASDAQ: TSLA). It\u2019s been on a scary ride over the past 12 months. Along the way it\u2019s slumped to a 52-week low of $212, and soared to a high of $488.<\/p>\n There\u2019s a 2.3-fold difference between those two extremes. It\u2019s the kind of volatility we frequently see from penny stocks here in the UK. But this is a company with a market cap of $1.4trn \u2014 nearly six times the value of the FTSE 100<\/strong>\u2018s biggest, HSBC Holdings<\/strong>.<\/p>\n Tesla currently commands a forecast price-to-earnings (P\/E) multiple of 295. And whether that makes any sense depends on what we see the company as actually being.<\/p>\n If it\u2019s just an electric vehicle manufacturer, valuing it that highly might seem like madness. But if it really is the future of driverless vehicles, robotics and AI, then who knows? I don\u2019t, that\u2019s for sure.<\/p>\n How does the overall US stock market valuation shape up? Berkshire Hathaway <\/strong>CEO \u2014 and self-made billionaire investor \u2014 Warren Buffett has a long history of getting stock valuations right.<\/p>\n In 2001, in a Fortune magazine interview, Buffett spoke about the market-cap-to-GDP ratio. It compares the total value of companies on the US stock market to the nation\u2019s gross domestic product (GDP).<\/p>\n He called it \u201cprobably the best single measure of where valuations stand at any given moment.\u201d And it\u2019s since become widely known as the Buffett Indicator.<\/p>\n The long-term average, going back to the 1970s, comes out at 85%. By mid-September 2025, it had soared as high as 218%. The US stock market is now valued at more than twice the country\u2019s entire GDP.<\/p>\n Some critics of the Buffett Indicator say it\u2019s out of date, being based on GDP. The potential for US companies far exceeds this today, they say. There\u2019s global domination at stake here, far more than ever before.<\/p>\n I think that argument has some merit. I\u2019m just not sure how big a ratio it might justify. And I\u2019ve no idea what Buffett Indicator value might be appropriate in these days of the Magnificent 7.<\/p>\n But then we come to the Shiller P\/E Ratio. That\u2019s the market P\/E, but cyclically adjusted to cover the previous decade\u2019s inflation-adjusted earnings. It seems like a more meaningful measure to me, getting beyond potentially misleading short-term volatility.<\/p>\n It hit 39.9 this month, the third-highest it\u2019s been for 150 years. The highest was at the peak of the dotcom bubble.<\/p>\n I\u2019m being very careful about highly-valued stocks right now. But we should always be careful when we consider buying a flying growth stock, right?<\/p>\n","protected":false},"excerpt":{"rendered":"Image source: Getty Images The US stock market is showing signs of an unstoppable bull run, or a…\n","protected":false},"author":2,"featured_media":89407,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[175],"tags":[58421,79,18,19,17,188,26039,1402,617],"class_list":{"0":"post-89406","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-buffett-indicator","9":"tag-business","10":"tag-eire","11":"tag-ie","12":"tag-ireland","13":"tag-markets","14":"tag-penny-stocks","15":"tag-stock-market","16":"tag-warren-buffett"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/89406","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=89406"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/89406\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/89407"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=89406"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=89406"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=89406"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}