This past week, as the U.S. stock indexes once again set new records, one of legendary investor Warren Buffett's most famous maxims came back into fashion: investors should be "scared" when others are greedy".

And any fan of Buffett's will feel it's right to be apprehensive to use the "Oracle of Omaha's" favorite metric to measure how risky the markets are these days.

The Buffett indicator has a very simple formula: divide the total capitalization of the US stock market by the US GDP in USD. In 2019, the index surpassed the previous high that was set during the dot-com bubble for the first time. For decades now, the "Buffett indicator" has been on an upward trend. However, in recent weeks, even the long-term trend could not make investors less afraid when looking at this index. The market capitalization of the US stock market is now more than double the estimate of US GDP in the current quarter - the highest level ever.

Buffett indicator through periods from 1990 to present. On February 4, the index exceeded the dot-com bubble. Source: Bloomberg.

With US interest rates near zero, the Fed will continue to buy bonds in the near future and abundant savings as well as fiscal stimulus will boost GDP and corporate profits. Over the past decade there have been many risk warnings that have not materialized.

However, according to Michael O'Rourke, chief strategist at JonesTrading, the Buffett indicator still shows a special fever in the US stock market. "Even if the Fed were to stick with the current policies forever (which they shouldn't), it still doesn't make sense to pay more than twice the 25-year average."

Not only the Buffett indicator, many other value measures have also set new records in the post-pandemic recovery. The P/E, P/S and P/B indexes of US stocks are all higher than during the dot-com bubble.

In the past, an increase in market capitalization was still considered a bad indicator to determine when the market peaked. But at the moment, many investors confidently bet that the recovery from the pandemic will cause the denominators of the aforementioned indexes to increase, so they are not afraid when the capitalization value rises too high.

Last week, the S&P 500 gained 1.2% to close at a record high on optimism about vaccine distribution and new fiscal stimulus. Energy, the fastest growing sector since the beginning of the year, was also the leading industry group with an increase of 4.3%.

Meanwhile, the 10-year US bond yield hit 1.2% on Friday, the highest since last year. There is little chance that interest rates will reach a threshold that will erode the market's momentum. In his latest speech, Fed Chairman Jerome Powell once again emphasized that the Fed will not withdraw its stimulus policies anytime soon. That brings more comfort to the market.