The S&P 500’s forward price-to-earnings multiple is at its highest level in decades, currently at 21.8. This is 10% above the five-year average and 18% higher than the 10-year average. The Federal Reserve found that Donald Trump’s tariffs may lead to higher prices in the long run. U.S. unemployment is at its highest level in four years, despite cooling inflation. The S&P 500 gained 17% in 2025, marking a third year of double-digit gains. Artificial intelligence, energy, and industrials drove the market, with Trump’s tariffs influencing investor sentiment.

Investors are questioning the sustainability of the bull market as the S&P 500 reaches peak valuations. The Shiller CAPE ratio is currently at 40.7, comparable to levels during the dot-com bubble. Tariffs can lead to lower inflation and higher unemployment in the short term. Over time, businesses reorganize supply chains, leading to gradual inflation increase. The stock market may be overvalued, and history suggests a correction in 2026. Prices could rise, imposing another burden on consumers and investors.

In 2022, U.S. inflation hit 9.1%, the highest in over 40 years. Trump’s tariff agenda aimed to combat inflation, but the Fed found tariffs lead to lower inflation and higher unemployment in the short term. The long-run effects include rising prices and accelerating inflation rates. Investors may want to reduce exposure to speculative positions and start stockpiling cash for potential market corrections.

Read more at Yahoo Finance: The Stock Market Is Flashing a Warning Last Seen Decades Ago, and the Federal Reserve Just Made President Trump’s Tariffs Even Riskier. Here Is What History Says Could Happen Next.