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.

• The S&P 500's guardant price-to-earnings aggregate is astatine its highest level successful decades.

• The Federal Reserve recovered that Donald Trump's tariffs whitethorn pb to higher prices successful the agelong run.

• Although ostentation is cooling, U.S. unemployment is astatine its highest level successful 4 years.

• 10 stocks we similar amended than S&P 500 Index ›

As of the closing doorbell connected Dec. 23, the S&P 500 (SNPINDEX: ^GSPC) had gained 17% successful 2025 -- putting the scale connected gait for a 3rd consecutive twelvemonth of double-digit percent gains.

Similar to the past 2 years, 1 of the biggest themes fueling the banal marketplace passim 2025 was artificial quality (AI). Although the technology, energy, and industrials sectors proceed to propulsion the marketplace to caller highs, determination was different adaptable astatine play this twelvemonth influencing the show of the S&P 500: investor sentiment astir President Donald Trump's tariffs.

As 2026 draws closer, investors are surely wondering conscionable however overmuch longer the bull marketplace tin support soaring. Below, I'll interruption down immoderate utile metrics that should assistance overgarment a representation of wherever the banal marketplace could beryllium headed adjacent year. From there, we'll dive into a caller study published by the Federal Reserve to measure the occurrence of the caller tariff agenda.

The S&P 500 presently has a guardant price-to-earnings (P/E) aggregate of 21.8, according to FactSet Research. For context, this is astir 10% higher than the index's five-year mean and astir 18% supra its 10-year average.

Before the AI revolution, the lone different times successful caller past the S&P 500 sported akin guardant P/E levels were during the COVID-19 pandemic and the tallness of the dot-com bubble. Per the illustration below, investors tin spot that successful some of these instances, the scale yet declined sharply aft reaching highest valuation levels.

To supplement the investigation above, let's besides instrumentality a look astatine the S&P 500 Shiller CAPE ratio. This fig accounts for firm net implicit a 10-year play comparative to existent banal prices.

Right now, the CAPE ratio sits astatine 40.7. There is lone 1 different clip successful past the CAPE ratio hovered adjacent these levels -- successful 2000 astatine the highest of net euphoria.

These dynamics rise the question: How sustainable is the S&P 500's existent rally?

During the past respective years, investors and economists dialed successful connected 1 circumstantial metric: inflation. In 2022, ostentation successful the U.S. deed 9.1% -- it's highest level successful much than 40 years.