Warren Buffett's Favorite Stock Market Indicator Is Flashing Red. Here's What History Warns Is Coming Next.

Warren Buffett's market valuation indicator (market-cap-to-GDP ratio) is currently at 233%, well above his 200% warning threshold, suggesting stocks are trading at historically expensive levels. While this doesn't guarantee an imminent crash, history shows such valuations preceded the dot-com bubble (49% S&P 500 decline) and 2022 correction (25% decline). However, today's AI leaders have stronger fundamentals than dot-com era companies, and investors should focus on quality companies with competitive advantages rather than timing the market.