Market crash warnings keep stacking up, making investors around the world nervous. Michael Burry, the famous investor known for shorting stocks, placed significant bets against AI stocks, indicating that he expects a major market decline. Several major banks have issued warnings about overheated markets that may undergo a correction.
A question keeps popping up: Are we heading for a stock market crash? The concern grows stronger now that the ‘Buffett Indicator’ shows warning signs. We should understand what these signs mean before making rushed investment decisions.
Expat Wealth At Work will get into why people predict a market crash more often now, what the Buffett Indicator really tells us, and the practical steps you can take as an investor if a downturn is coming.
Why Everyone Is Talking About a Market Crash
Banking executives have raised unprecedented concerns in the financial world. JPMorgan Chase CEO Jamie Dimon stunned analysts when he said the crash probability stands at 30%, not the 10% markets currently expect. Leaders at Goldman Sachs and Citigroup have also voiced their worries about “investor exuberance” and “valuation frothiness.”
These fears grow stronger as economic indicators paint a grim picture. October saw consumer confidence drop to its lowest point in five months. Job market weakness showed up in August with just 22,000 new positions. Inflation stays stuck at 3%, well above the Fed’s 2% target.
The AI sector, which once drove market excitement, now draws sceptics. A newer study, published by MIT shows that 95% of generative AI pilot projects haven’t saved much money despite billions poured into investments. On top of that, well-known investor Michael Burry has bet heavily against major AI companies.
People’s wallets tell the same story – 70% of investors say they feel financially shaky. The fear of a market crash worries 41% of them. This anxiety peaks in Argentina and Uruguay at 56%, while it reaches 50% in the US.
Despite this, some market observers refer to recent dips as mere “speed bumps”. They point to robust consumer spending as proof that markets remain strong beneath the surface despite short-term ups and downs.
Understanding the Buffett Indicator
The Buffett Indicator, named after the legendary investor Warren Buffett, helps us measure market value by comparing the total market value of all public stocks to a country’s GDP. Buffett believes it’s “probably the best single measure of where values stand at any given moment.”
The indicator now shows a remarkable 217%. This means U.S. stocks are worth more than double the size of the American economy. Buffett cautioned, “If the ratio approaches 200%—as it did in 1999 and a part of 2000—you are playing with fire.”
The market now sits at levels much higher than those seen during the Dotcom Bubble. Based on historical standards, we’re in “by a lot overvalued” territory, since readings above 160% usually point to excess.
The math behind this figure is simple. You take the total market value (about EUR 62.47 trillion) and divide it by the annual GDP (about EUR 28.77 trillion). History shows that values under 75% often meant stocks were undervalued and advantageous to buy, while our current level suggests stocks might be overpriced.
This measure makes sense because our economy runs on consumption. People need to produce to earn money so they can spend it. Their spending creates company revenues that turn into profits.
What Investors Should Do If a Crash Is Coming
Warren Buffett sees market crashes as golden opportunities while others rush to exit. He lives by his famous words: “be fearful when others are greedy and greedy when others are fearful.” This mindset helps him turn market downturns into chances to buy quality businesses at bargain prices.
Smart investors build their “ark” before the storm hits. Buffett’s strategy shows in his actions – he now holds a record EUR 310.12 billion in cash. This isn’t just money sitting around – it’s “financial ammunition” ready for rare opportunities.
Your portfolio needs proper diversification. Long-term German government bonds, European corporate bonds, and gold can shield your investments. Some savvy investors look at “market neutral” strategies that work well with market swings while keeping direct exposure low.
The next step is regular portfolio rebalancing. Please review your allocation every six months. If your stocks have grown too much, lock in some gains and move the money to areas that need more weight.
The biggest lesson? Don’t sell in panic. A simple EUR 95.42 investment in the S&P 500 back in 1928 would have grown to over EUR 937.03k today, despite all the market crashes. Buffett’s wisdom rings true here: if a 30% price drop doesn’t change how many Coke people drink next year, the business’s real value stays solid regardless of the market’s temporary mood.
Final Thoughts
Market indicators heading into 2025 show some worrying signs. Of course, we need to closely monitor the Buffett Indicator at 217%, particularly considering Buffett’s own warning that investing near 200% could be risky. Notwithstanding that, market indicators should help us prepare rather than panic.
History shows us time and again that market downturns create amazing chances for well-prepared investors, painful as they may be. Building your financial resilience before any potential storm makes good sense. Your cash reserves work as an opportunity fund, not just idle capital. Protection against market volatility comes from smart diversification in various asset classes.
Note that market crashes only show temporary opinions about businesses, not permanent changes to their core value. Companies will keep selling their everyday products and services whatever the market does. Your investment strategy should reflect this long-term viewpoint.
The smartest investors know market turbulence is just part of the normal investment cycle, whether it happens in 2025 or later. They plan ahead, stay disciplined during volatile times, and benefit from buying quality assets at lower prices. Headlines might focus on fear, but patience and preparation determine your success at the time of market downturns.