Major U.S. stock indexes closed 2025 with significant gains. The Dow Jones Industrial Average rose 13%, the S&P 500 increased 16%, and the Nasdaq Composite climbed 20%.
Investor excitement has been fueled by the proliferation of artificial intelligence and the prospect of additional interest rate cuts.
On January 11, 2026, the market cap-to-GDP ratio, known as the Buffett indicator, reached 224.35%. This figure represents a new all-time high.
The Buffett indicator compares the total value of all publicly traded U.S. companies to the nation's gross domestic product. Warren Buffett, the retired CEO of Berkshire Hathaway, described it in a 2001 Fortune magazine interview as "probably the best single measure of where valuations stand at any given moment."
The average reading for this ratio since December 1970 is approximately 87%. The current reading is about 158% above that long-term average.
While not a timing tool, historical data shows that when the ratio extends far above its historical norm, a bear market decline has typically followed. Analysts note that stocks can remain expensive for extended periods before correcting.
Warren Buffett oversaw a cumulative gain of nearly 6,100,000% in Berkshire Hathaway shares during his six-decade tenure as CEO. He was known as a devout value investor, with an unbreakable rule of seeking good deals.
Buffett's long-term investing approach emphasized patience and perspective. He recognized that predicting short-term market movements was impossible with long-term accuracy.
Historical market data supports this view. Since the Great Depression, S&P 500 bear markets have lasted an average of 286 calendar days. In contrast, bull markets have persisted for an average of 1,011 calendar days.
Recessions, a normal part of the economic cycle, have averaged about 10 months in length since World War II. Economic expansions have typically lasted around five years.
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