U.S. stocks blew past Warren Buffett’s key danger signal with market cap at 212% of GDP. Speculative trading surges, Fed rate cuts may face delays.
The U.S. stock market has just blown through Warren Buffett’s favorite economic indicator, stock market cap to GDP, setting a new all-time high. The valuation of the Wilshire 5000—which hit a record high on July 23—is now somewhere north of 212% of U.S. GDP, the ‘Buffett Indicator’ shows. Perhaps that’s one reason stocks are selling off globally this morning.”
Speculation levels are extreme
“There’s another sign the markets may be near their top: Goldman Sachs launched a new ‘Speculative Trading Indicator’ that measures froth by gauging trade volumes in ‘unprofitable stocks, penny stocks, and stocks with elevated EV/sales multiples’—the kind of trades that only look good when the market is rising irrationally. Sadly, ‘the most actively traded stocks include most of the Magnificent Seven along with companies involved in digital assets and quantum computing, among others,’ Ben Snider and his team told clients.
‘The indicator now sits at its highest level on record outside of 1998–2001 and 2020–2021, although it remains well below the highs reached in those episodes,’ they said.”
Rate cuts? Maybe not so soon
“No one expects the Fed to lower interest rates next Friday, despite President Trump’s continued pressure on Chair Jerome Powell. So investors are focused on September, October, and December. Sixty percent of speculators in the Fed funds futures market currently think Powell will cut interest rates by 0.25% to the 4% level in September—a move that would deliver new cheap money into equities.
‘We see no interest rate cut this month, but the Fed is expected to start laying the groundwork for a move, most likely in December,’ ING’s James Knightley and Chris Turner said. ‘As long as the jobs picture holds up, firmer inflation may well delay the restart of the Fed easing cycle.’”
Tariffs and inflation
“Trump’s tariffs are starting to contribute to inflation, UBS’s Paul Donovan told clients. ‘Consumers in Europe, the U.K., Mexico, and Canada are paying between 0.3% and 1.9% less for the consumer appliances they buy than was the case in March of this year. The U.S. consumer, meanwhile, is paying (on average) 3.6% more for their appliances than they were before Trump’s trade taxes,’ he said.”
A hidden growth engine?
“And then, according to Piper Sandler’s Nancy Lazar and her colleagues, there’s a secret weapon hidden inside Trump’s One Big Beautiful Bill that could supercharge GDP growth (and thus, by implication, deter the Fed from cutting): capex.
‘Capex’s GDP punch is triple that of housing. Upside capex shocks add 1%+ to GDP. And every related goods-producing job creates six more—the multiplier. Our preliminary (very preliminary) forecast for 2026 real GDP is about 3%,’ they told clients.”
Global markets snapshot
- S&P 500 futures were flat (+0.13%) premarket after closing at 6,363.35.
- Tesla dropped 8.2% after disappointing earnings.
- STOXX Europe 600 down 0.34%.
- U.K.’s FTSE 100 down 0.39%.
- Japan’s Nikkei 225 down 0.88%.
- China’s CSI 300 down 0.53%.
- South Korea’s KOSPI up 0.18%.
- India’s Nifty 50 down 0.86%.
- Bitcoin down 2.76% to $115K.
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