The U.Sstock market has certainly captured the imagination of investors across the globeThe term "bull market" has become synonymous with this uptrend, a phenomenon so intense that it seems to defy mathematical reasoningObservations of the S&P 500 index over the past 15 years reveal a staggering acceleration, with the slope of price increases seemingly steepening through the years—imagine an incline shifting from a manageable 20 degrees up to a near-vertical 90 degreesIt raises a rhetorical question: could we see a day when the index leaps to 1,000,000 points in a single day?

While it's uncertain whether the U.Sstock market has more room to grow and reach new historical highs shortly, one aspect remains clear: today’s valuations are incredibly high, bordering on historical extremes

Take a trip down memory lane to December 2001, when investment guru Warren Buffett wrote an article for Fortune magazine

He indicated that the ratio of total stock market capitalization to Gross National Product (GNP) might be the best single metric for assessing valuations at any given timeThis assessment has only intensified in recent years, particularly as the Federal Reserve's quantitative easing policies have injected liquidity into the market, prompting some analysts to propose an upgraded version of the Buffett IndicatorThis revised metric aims to predict the annualized return on the U.Sstock market over the next eight years using the formula TMC/(GDP + TA), where TA refers to the total assets held by the Federal Reserve.

Let’s take a closer look at the current state of both Buffett's original indicator and the upgraded versionThere is a notable spike in the original Buffett Indicator, which neared an astonishing 200% in August and December of 2021. Now, recent data from December 24 reports a figure exceeding even that—206% and counting.

When we examine the upgraded version of the indicator, we again see elevated numbers

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Historical data points show that in March 2000, as well as August and December of 2021, it hovered around 145%. However, post-June 2024, it has remained consistently above 150%, with December 24 data peaking at 167%.

If we explore the Shiller Price-to-Earnings ratio, which is calculated over ten-year cycles, we can observe that it has proven to be remarkably accurate in assessing the valuation of the S&P 500 over the past 150 yearsCurrently, this metric has surpassed the pandemic-era bubble levels of 2021 and is approached only by the tech bubble of 2000. The question arises: how many investors truly understand just how overvalued the U.Sstock market is from a macroeconomic perspective?

To illustrate this concept more tangibly, let’s examine Apple Incas a quintessential representation of the U.S

stock marketApple is recognized for its robust business practices, allowing us to apply various traditional stock valuation methods to its stockThis gives us a vivid illustration of its current valuation state.

For technology companies with overall stable revenues and profits, the discounted cash flow method is most commonly employed for valuationIn simple terms, this method suggests that a company’s value is equivalent to the present value of its projected cash flows over timeIf we translate that into current valuation terms, we arrive at the Price to Cash Flow Ratio (PCF) which should ideally be under 20. For instance, Tencent stands at approximately 13.5. However, when we turn our attention to Apple, the current figure is a staggering 33, far from the typical 20 times valuation metric, especially considering it previously hovered around 25 during the pandemic when higher growth was expected.

Another common metric to consider is the trailing twelve months Price-to-Earnings ratio (TTM P/E). Astonishingly, Apple now stands at an outrageous 42 times earnings—an evaluation comparable to those of high-growth tech companies

Yet this raises a critical question: where is Apple’s purported high growth?

The apparent discrepancy doesn’t end thereTraditional valuation metrics including Price to Book (PB) and Price to Sales (PS) further illustrate this gap, providing evidence of how distorted Apple's current financial metrics appear when stacked against industry norms.

Looking back at the last three years of data, Apple has effectively plateaued; revenues and net profits appear stagnantWith current U.STreasury bond yields around 4.5%, for an established company like Apple, expecting a 30 times multiple on TTM P/E is downright extravagant, let alone at 40 times.

Is the market banking on groundbreaking advancements in artificial intelligence, virtual reality, or electric vehicles from Apple? Speculations have swirled aroundApple's automotive pursuits; however, these ambitions have been officially shelved

Virtual reality innovations are yet to gain substantial market tractionMoreover, the company's AI offerings remain insignificantly behind its competitors.

Given these circumstances, one must ponder what sustains such an inflated valuation for AppleAre investors merely dreaming, hoping for a windfall from the sky to skyrocket the company’s worth?

Even seasoned investor Warren Buffett has significantly reduced his Apple stock holdings by over two-thirds, leaving us all in anticipation of understanding how Apple continues to maintain its inflated valuation—insight that isn’t readily available in the market commentary.

Taking current stock prices into account, Apple’s market capitalization soars to an astounding $3.9 trillionTo put that in perspective, only four countries in 2023 boasted GDP figures exceeding $4 trillion, placing Apple’s valuation squarely as the fifth largest globally among world economies.