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'Buffett Indicator' Says the Stock Market Is Way Overvalued: StockTwits

NEW YORK (TheStreet) -- Warren Buffett -- the Sage of Omaha and the CEO and chairman of Berkshire Hathaway (BRK.A) (BRK.B - Get Report) -- is said to have a favorite metric for gauging the value of the entire stock market.

The metric is fairly simple, too.

It is calculated by dividing the entire market cap of all equities by the total quarterly GDP of the U.S.. Some investors and traders refer to it as "the Buffett Indicator." The metric provides insight into the stock market's total value relative to the growth and output of the entire U.S. economy. 

As of right now, the Buffett Indicator is at its second-highest level in over 50 years. And that's despite the fact that since 2014 started, the S&P 500 (^GSPC) is up only 1.5% while the Nasdaq Composite (^IXIC) and Dow Jones Industrial Average (^DJI) are both down roughly 1%.

Is this something to worry about? Take a look at how Buffett's metric has fluctuated since 1950 in the remarkable chart shared below:

Buffett Indicator 2nd highest level in 50 years. $SPY $IWM $QQQ $DIA $STUDY

-- Chris Kimble (@KimbleCharting) May. 1 at 01:00 PM

Follow the author on Twitter and StockTwits.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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Chart of I:DJI
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