Stocks are now pricier than ever based on two trusted metrics, analysts warn
The fact that the U.S. stock market has become expensive isn't exactly breaking news anymore, but two indicators offer a particularly striking perspective.
Apollo chief economist Torsten Slok recently compared two key valuation metrics: the Warren Buffett Indicator, which measures the U.S. stock market’s total capitalization relative to GDP, and the Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio, which compares prices to long-term earnings.
The findings are stark. As of 2025, the S&P 500’s market capitalization stands at roughly 220% of U.S. GDP, while the Shiller CAPE is near 40.
For comparison, on the eve of the 2007 financial crisis, the Buffett Indicator was about 140% and the CAPE roughly 27. During the 2000 dot-com bubble, the CAPE was higher at 43, but the Buffett Indicator was lower, around 150%.
Both measures now sit near or at record highs, which have historically preceded significant market corrections.
Today’s extremes may also reflect deeper structural shifts in the economy, including persistently low interest rates, the dominance of technology companies, and increased global capital flows.
Yet these same forces raise pressing questions about the sustainability and risk of current market valuations.
Investor complacency may be the stock market’s biggest risk
InvestorsObserver has reported for months about mounting valuation risks, citing the tech sector’s growing concentration and a surge in margin borrowing as reasons for concern over the current value of U.S. equities.
The artificial intelligence boom has only intensified the issue, with companies like Nvidia (NVDA) soaring to a market capitalization of $5 trillion, roughly equivalent to the size of two Canadian economies.
According to Mark Hulbert of Dow Jones, perhaps the biggest threat to the market today is investor complacency.
“The fact that corporate profits are strong and growing doesn’t mean the stock market isn’t in a bubble,” he wrote, arguing that bullish investors are conflating earnings growth with market health.
Like Apollo’s Torsten Slok, Hulbert points to the elevated Shiller CAPE ratio as a key warning sign that valuations may have reached unsustainable levels.
Despite sharp swings, the S&P 500 Index has gained more than 15% year-to-date, setting multiple record highs in the second half of the year. Still, JPMorgan Chase CEO Jamie Dimon has cautioned that “there’s a lot of turbulence out there,” particularly in the economy and private credit markets.