The Stock Market Sounds an Alarm as Investors Get Bad News About President Trump's Tariffs. History Says the S&P 500 Will Do This in 2026.

Economic Growth and Tariffs - U.S. GDP increased an annual 4.3% during the third quarter, marking the most robust growth in two years, although this growth was artificially inflated due to low imports as companies stockpiled inventory ahead of tariffs [1] - President Trump claimed that tariffs would protect American workers and create millions of jobs, yet unemployment reached a four-year high, with hiring slowing more profoundly in 2025 than any other year since the Great Recession in 2009 [3] - The Institute for Supply Management reported that U.S. manufacturing activity has contracted for nine consecutive months due to economic uncertainty created by tariffs [4] Consumer Impact and Market Sentiment - Goldman Sachs indicated that U.S. companies and consumers paid 82% of the tariffs in October 2025, with consumers expected to bear 67% of the burden by July 2026 [5] - Consumer sentiment in 2025 recorded its lowest annual average since 1960, contradicting Trump's assertion that tariffs would lead to widespread happiness [2] Stock Market Valuation and Predictions - The S&P 500 added 16% in 2025, marking three consecutive years of double-digit gains, but evidence suggests that Trump's tariffs are negatively impacting the economy, leading to concerns about a challenging 2026 [7] - The S&P 500's average CAPE ratio reached 39.4 in December, the highest since the dot-com crash in 2000, indicating potential overvaluation [10] - Historical data shows that after a monthly CAPE ratio above 39, the S&P 500 has dropped by an average of 20% over the next two years and has never generated a positive three-year return under such conditions [13] Long-term Economic Outlook - Empirical evidence from the Federal Reserve Bank of San Francisco suggests that tariffs have historically led to higher unemployment and slower economic growth, which could negatively affect the stock market [8] - The current high valuation of the S&P 500 serves as a warning for investors, particularly in light of the potential economic slowdown due to tariffs [14]