Slow Street Capital: Weekly Macro Financial Metrics

The Shiller Cyclically Adjusted PE (CAPE) Ratio measures the S&P 500’s current price against its average, inflation-adjusted earnings over the past 10 years.

CAPE = S&P 500 Price ÷ 10-Year Average Real Earnings

It is a stock valuation metric that helps assess future market returns rather than timing short-term market movements, and helps to smooth out the boom/bust distortions that can make single-year P/E ratios misleading.

The Potential Growth Indicator (PGI) measures what % of the U.S. stock market’s total value is sitting in taxable money market accounts as cash ready to be deployed into equities.

PGI = ICI Taxable Money Market Assets ÷ Wilshire 5000 Price

It’s a contrarian signal. When investors are fearful and hoarding cash, PGI rises — which is when you should be more aggressive. When everyone’s already in the market, PGI falls — so it’s time to temper your enthusiasm.

The Buffett Indicator measures whether the market (all publicly traded U.S. stocks) is expensive or cheap relative to the actual size of the economy (US GDP).

Buffett Indicator = Wilshire 5000 Market Cap ÷ U.S. GDP

A ratio above 100% means the market is worth more than the entire economy produces in a year — historically a sign of overvaluation. The higher it climbs, the more caution is warranted. Warren Buffett called it “probably the best single measure of where valuations stand at any given moment.”