Warren Buffett’s Favorite Valuation Indicator Flashes Buy Signal

A key valuation metric touted by legendary investor Warren Buffett is signaling that equities are relatively cheap, bolstering the case that the sizzling rebound in US stocks has room to run.

The “Buffett Indicator” measures the ratio of the total value of the US stock market via the Wilshire 5000 Index divided by the dollar value of US gross domestic product. It stands at its lowest level since early September — even after a bounce that has sent stocks screaming higher in recent weeks.

The 94-year-old chief executive of Berkshire Hathaway, which will hold its annual meeting in ...