Tariffs, Turmoil, and the S&P 500’s Warning Shot

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The S&P 500 (^GSPC 1.16%) has marched upward like a man in a trench coat, humming a tune no one understands. Fifteen percent year to date-bold, even for a market accustomed to chaos. But what’s a stock index to do when a man with a megaphone insists the world owes him a trade war? Investors, bless their collective hearts, are receiving letters they didn’t ask for.

  • President Trump claims foreign exporters will “absorb the tariffs.” A charming lie, like saying the moon is made of cheese. Goldman Sachs, that grumpy old sage, insists U.S. companies and consumers are paying 82% of the duties. So it goes.
  • Trump dismisses inflation as a “hoax.” Inflation, meanwhile, has been sipping coffee in the corner since April, smiling like a cat with a secret. Prices rise. Wages stall. The joke’s on us.
  • Trump promises tariffs will strengthen the economy. JPMorgan Chase, that grizzled old bear, lowered its growth forecast by 0.2 percentage points. So it goes. Tariffs: the economic equivalent of painting the Golden Gate Bridge pink and calling it “vibrant.”

This week’s news arrived like a thunderstorm during a picnic. The S&P 500, already bloated with speculative fervor, now faces a double whammy: Trump’s tariffs and a valuation that makes even Warren Buffett shrug.

Jobs, Unemployment, and the Illusion of Prosperity

The White House released a “fact sheet” claiming tariffs will grow the economy by $728 billion. It’s the kind of number that makes you believe in miracles-if only the miracle were a spreadsheet error. The study came from the Coalition for a Prosperous America, a group with the same impartiality as a man selling insurance on a sinking ship. The World Trade Institute called it “highly unusual and empirically unsupported.” A polite way of saying, “You’ve been had.”

Meanwhile, the economy added 17,000 jobs per month over six months. That’s slower than a sloth in a board meeting. Unemployment hit 4.6%. Manufacturing activity fell for nine straight months. Susan Spence of the ISM said, “For every positive comment about new orders, there were 1.2 comments about tariff costs.” So it goes.

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Consumers, those fragile creatures, now have the lowest sentiment since 1978. The Michigan Index averaged 57.6. That’s not just pessimism-it’s resignation. Two-thirds of GDP depends on them. If they stop spending, the economy becomes a soufflé in a hurricane.

The S&P 500’s Cosmic Warning

The S&P 500’s CAPE ratio hit 39.1. That’s not just expensive-it’s “bought the farm” territory. Only once since 1957 has the CAPE topped 39: during the dot-com bubble. And what happened then? A crash so brutal it made the Great Depression look like a nap. Here’s the math:

Time Period S&P 500 Average Return (CAPE Ratio 39+)
1 Year (4%)
2 Years (20%)
3 Years (30%)

If history repeats, the S&P 500 will fall 4% in a year and 30% by 2028. Past performance is no guarantee of future results-but history is a lousy teacher. Investors, ever hopeful, might cling to AI as a life raft. Yet the real question is: Will the raft hold if the ocean turns to quicksand?

As a business historian, I’ve seen this movie before. Tariffs, bubbles, and presidents with megaphones. The plot never changes. Investors should buy only high-conviction stocks and hoard cash like a squirrel in a drought. When the next crash comes-so it goes.

History doesn’t repeat itself. It just rhymes. 📉

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2025-12-18 12:27