Wall Street on red alert as Warren Buffett’s favorite stock market gauge hits the worst reading EVER

Wall Street legend Warren Buffett famously told investors to be fearful when others are greedy – and right now, the stock market is looking very greedy indeed.

A handy tool named after the legendary investor measures the market’s greed or fear, and this week it’s flashing an urgent warning that stocks are massively overvalued.

The so-called Buffett indicator divides the total value of all US stocks by the total economic output of the United States, delivering one simple number that sums up how investors are feeling at the moment.

Buffett said that a reading of 100 percent suggests markets are in balance – in other words, the stock market is worth about as much as the US economy produces in one year – while a lower figure means stocks are undervalued.

Right now, the index hit its highest reading ever – 232 percent – indicating that stocks are historically overvalued.

Measured by the benchmark S&P 500 index, the stock market has surged a shocking 13 percent since the end of March thanks to the Iran war ceasefire and oil more than 20 percent off its wartime spike higher.

Right now, the indicator is well above its last two all-time highs: The 219 percent reading seen at the height of the 2021 pandemic stock market frenzy, and the 163 percent level at the 2000 peak of the dot com bubble.

Meanwhile, the latest figures show US economic growth has nearly flatlined – with the entire US economy valued around $31 trillion, up a mere 0.5 percent in the final quarter of 2025.

In late 2025, the Buffett index was soaring over 200 percent, and it seems the oracle of Omaha was watching.

Shortly before he stepped down as Berkshire Hathaway’s CEO at the end of 2025, Buffet directed his company to sell off major positions – like aggressive sales of Apple stock and most of its Amazon shares.

At that time (the most recent data available), Berkshire was sitting on a record $382 billion pile of cash and short-term investments.

This massive pool of liquidity represented a significant chunk of the company’s market value – and in Buffett’s own words, the company held so much cash thanks to a lack of ‘attractive investment opportunities.’

He saw that markets were too greedy, but this is not the first time Buffet has held tons of cash – and in two prior periods coincided with massive market crashes.

At the height of the dot-com bubble in 2000, Berkshire was sitting on $35 billion cash – more than half the company’s market value – as markets imploded during the tech crash.

As the US housing bubble was starting to pop in late 2007, Berkshire held $47 billion in cash – more than half its total market value.

After both market meltdowns, Buffett swooped in to spend the cash on major new acquisitions – Mid-American Energy after the dot-com bust, and Goldman Sachs during the 2008 financial crisis.

JPMorgan CEO Jamie Dimon has frequently warned about an inflated stock market, even admitting he feels more cautious than many in the business world.

He fears that market valuations are too high while investment remains overly concentrated among the largest companies in the US.

This was the market dynamic that prevailed at the height of the surge in greed seen during the dot com bubble, when the indicator pushed to 219 percent

At the time, investors were flooding Wall Street with record amounts of cash as the internet age retooled the entire US economy, and bettors tried to get their slice of the economic pie.

But by 2002, the investments crashed. Stocks entered a bear market in October that year.