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Buffett indicator has surged to 220.1%, signaling stretched equity valuations. Trex faces challenges but remains a global leader. Capital Economics and Goldman Sachs warn of risks.
When expectations run high, even small disappointments in earnings or guidance can spark volatility. (Representative image)
Markets have steadied after the recent tech-driven pullback, yet a key valuation gauge suggests equities may still be stretched. The Warren Buffett indicator— which compares the total value of listed stocks to national GDP — has climbed to 220.1%.
That’s above its 2021 peak, just before the sharp 2022 downturn, and well beyond the 110%–150% range that prevailed through most of the past decade, according to a report in Hindustan Times.
Such an elevated reading implies investors are pricing in strong future growth. When expectations run high, even small disappointments in earnings or guidance can spark volatility. Several major research houses have flagged this risk. Capital Economics has warned the S&P 500 could face a double-digit decline, while Goldman Sachs has outlined similar downside scenarios if profit growth cools. These outlooks have fueled speculation about a broader correction, or even a more pronounced slowdown in 2026.
In richly valued markets, Warren Buffett has often increased cash holdings to preserve flexibility and reduce risk. That approach allows investors to deploy capital when better opportunities emerge.
Importantly, not every stock looks overheated. Some companies within the S&P 500 trade at more moderate valuations. Trex (NYSE: TREX) is one example. Shares have fallen over 35% in the past year and now change hands at roughly 23 times earnings, below their historical average multiple of 33.
Trex has struggled with weaker home improvement demand amid higher interest rates in the US and UK, along with inventory adjustments and margin pressure that led to earnings misses in 2025. Still, the company remains the global leader in composite decking. If borrowing costs ease and demand stabilizes, performance could improve.
As Buffett has said many times, “the time to be greedy is when everyone else is fearful.”
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New York, United States of America (USA)
February 22, 2026, 07:16 IST
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