Powell’s Warning: 2026’s Stock Market Peril

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The S&P 500 rolled in with an 18% grin, but the shadows of Trump’s tariffs loomed large. Tariffs climbed from 3% to 17%, like a slow-burn fuse under the economy’s boots. When Trump hit the tariffs hard in April, the S&P 500 took a 19% dive. Economists howled about a recession, but AI spending kept the engines running.

Stephanie Aliaga from JPMorgan noted AI capex added 1.1% to GDP, outpacing the consumer’s tired shuffle. The S&P 500’s monthly gains since April? A gamble on resilience, but the odds were stacked against it. Powell, that sly fox, warned equity prices were “fairly highly valued”-a polite way of saying they were stretched thin.

Fed Governor Cook muttered about “outsized asset price declines.” The FOMC minutes? A grim reminder of stretched valuations, with some fearing a disorderly fall. The market, that fickle lover, had grown complacent. But complacency is a bullet in the chamber.

Some whisper an AI bubble, but this time, earnings back the gains. Unlike the dot-com era, where speculation ruled, AI’s rise is backed by real numbers. Nvidia’s stock? A 14x climb in five years, earnings 20x higher. That’s not a bubble-it’s a rocket, but rockets have fins.

The S&P 500’s CAPE ratio hit 39.4, a number last seen during the dot-com bubble. Only 25 months since 1957 saw such peaks. History’s not a friend here. After a CAPE above 39, the S&P 500 usually dips-4% in a year, 20% in two. The chart tells a story of pain, not profit.

Wall Street’s median target? 8,011 by 2026. A 15.5% gain, but don’t count on it. 2026 could be a storm. Portfolios need high-conviction stocks. The market’s a tough lover, and 2026 might not be kind.

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2025-12-27 11:23