"Traditional valuation measures suggest the S&P 500 is currently more than 20% overvalued, yet trend-following measures, like momentum, remain strong."
Berkshire Hathaway's massive cash pile, coupled with the reduction in stock holdings, signals that Buffett is navigating the current market with a keen sense of caution. It's not that he has lost faith in the stock market, but rather that he believes the market is overvalued and may be due for a correction.
Historically, the average CAPE ratio has been around 16–17, but in recent years it has risen above 30, suggesting that the market could be overvalued by historical standards. That said, the predictive power of the CAPE ratio has diminished over the last few years.
Investors and analysts consider stocks which have a P/E ratio of 50 or above to be an overvalued share, especially in comparison to a stock which has a ratio at par with or below 10. As it allows investors to determine that its share prices are considerably higher than what a company can afford to pay as dividends.
Fair Value Estimate for Apple
With its 2-star rating, we believe Apple's stock is overvalued compared with our long-term fair value estimate of $200 per share, which implies a fiscal 2025 adjusted price/earnings multiple of 27 times, an enterprise value/sales multiple of 7 times, and a free cash flow yield of 4%.
The current Buffett Indicator value of 207.3% is 1.65 standard deviations above the trend line, indicating the market is OVERVALUED.
By some key measures, U.S. stock valuations do appear quite high. As of August 5th, the forward price-to-earnings ratio, or P/E, for the S&P 500 stood at 19.7 times earnings, significantly higher than its 25-year average of 16.4. The U.S. market also looks expensive when compared to other regions of the world.
Tesla Vehicle Delivery Trends Are Concerning, and Shares May Be Overvalued. Despite shares soaring more than 60% last year, Tesla's annual vehicle deliveries actually declined. The company's automotive business is facing several significant headwinds.
An overvalued stock may be a good investment if the company has a strong future outlook and is expected to grow earnings rapidly. However, usually it is not wise to buy overvalued stocks since they don't offer much margin of safety.
The answer may lie in a combination of market valuations, shifting investment priorities, and preparations for future uncertainties. While some analysts view this cash position as a drawback, others see it as a deliberate move by Buffett, staying true to his philosophy of being fearful when others are greedy.
Market Expert Ruchir Sharma says that the stock market's momentum looks likely to sputter in 2025 and that it could falter as investors grow wary of the US's mounting debt problems.
Top Warren Buffett Stocks
Kraft Heinz (KHC), 325.6 million. Apple (AAPL), 300 million. Occidental Petroleum (OXY), 264.3 million. American Express (AXP), 151.6 million.
The U.S. stock market generally did well in 2024 and may continue strong in 2025. However, we expect to see gear shifts and increased market volatility as potential policies from the incoming Trump administration combine with uncertainty about inflation and global economic strength.
Yet, at around USD 2590 po the price of gold continues to look overvalued (see Chart 2). This also reflects the adverse impact on the estimated gold price of the evolution of its fundamentals after the US election.
The intrinsic value of one AMZN stock under the Base Case scenario is 133.94 USD. Compared to the current market price of 218.46 USD, Amazon.com Inc is Overvalued by 39%.
The stock value may increase to $271.00-431.00 by the end of 2025. However, some analysts expect the rate to decline to $230.49-207.83 in 2025. In 2026, the asset quotes will continue to grow. According to major analytical agencies, the value of TSLA may reach $305.36-471.00.
Intrinsic Value. The intrinsic value of one GOOGL stock under the Base Case scenario is 147.74 USD. Compared to the current market price of 192.04 USD, Alphabet Inc is Overvalued by 23%.
Warren Buffett has long recommended a low-fee S&P 500 tracker fund to amateur investors. Chamath Palihapitiya says it's become riskier as a few stocks now have an outsize pull on the index. Buffett mostly steers clear of tech names, but Apple has been his No. 1 stock for years.
Ups and downs. Since the index started including 500 companies in 1957, until the end of 2023, the S&P 500 saw an annual increase 47 times, and a decrease 20 times. This means the S&P 500 has increased 70% of the time, whereas it has lost money 30% of the time.
The S&P 500 entered its current bull market in October 2022 and has since advanced 65%, led by a 130% gain in the technology sector. Investors can position their portfolios to benefit from that upside by owning the Vanguard Information Technology ETF (NYSEMKT: VGT).
The best indicators for intraday trading include Bollinger Bands, Relative Strength Index (RSI), Exponential Moving Average (EMA), Moving Average Convergence Divergence (MACD), and Volume. These indicators are best for trading to help traders identify trends, measure momentum, and gauge market volatility.
As of October 2024, he had a net worth of $147 billion, making him the eighth-richest person in the world. Omaha, Nebraska, U.S. Buffett was born in Omaha, Nebraska. The son of US congressman and businessman Howard Buffett, he developed an interest in business and investing during his youth.
To give you some sense of what the average for the market is, though, many value investors would refer to 20 to 25 as the average P/E ratio range. And again, like golf, the lower the P/E ratio a company has, the better an investment the metric is saying it is.