Tariffs, Valuations, and the Inevitable Wobble

by

Donald Trump

The esteemed Jerome Powell, Chairman of the Federal Reserve – a man who clearly understands the delicate art of counting other people’s money – recently suggested that stocks were, shall we say, ‘optimistically priced.’ A polite way of saying the market resembles a particularly buoyant bubble. The S&P 500, predictably, barely blinked, adding a modest 3%. A gesture of defiance, or perhaps simple deafness. It’s often difficult to tell the difference in these matters.

Now, consider the tariffs. Ah, tariffs! Those delightful little taxes on everything that crosses a border, conceived in the minds of those who believe they can legislate prosperity. President Trump assures us these tariffs are a painless transfer of wealth from foreigners to Americans. A feat of economic alchemy, if ever there was one. The reality, however, is less shimmering gold and more tarnished copper.

Bad News About Tariffs: The Bill Always Comes Due

The average tax on imports has swollen to roughly 13%, a level not seen in these parts for nearly a century. A historical achievement, to be sure, though one might question its lasting legacy. The President maintains that foreigners are footing the bill. A charming notion, akin to believing one can spend money without earning it. But the evidence, alas, suggests otherwise.

  • The National Bureau of Economic Research, a gathering of serious individuals, reports that U.S. companies and consumers are absorbing a staggering 94% of these tariffs. A tidy sum, wouldn’t you agree?
  • The Federal Reserve Bank of New York echoes this sentiment, placing the burden on American firms and consumers at 86%. Foreign exporters, it seems, are managing to sidestep most of the damage. Clever fellows.
  • The Kiel Institute, a German think tank, claims a mere 4% of the tariffs are absorbed abroad. The remaining 96%? You guessed it – squarely on the shoulders of American buyers.
  • Even the Congressional Budget Office, a bastion of bureaucratic prudence, concedes that 95% of the tariffs are paid by Americans. A consensus is forming, wouldn’t you say?

The essence of the matter is this: every dollar extracted through tariffs is a dollar diverted from productive investment, from the pockets of consumers. It’s a subtle form of self-sabotage, a bit like draining the swamp only to fill it with slightly different mud. The economy slows, businesses suffer, and the market, eventually, notices.

The Federal Reserve’s Warning: A Tower Built on Air

The CBO predicts that these tariffs will shave off a portion of real GDP. A polite way of saying they’ll make things a bit less…robust. This, at a rather inconvenient moment, as the S&P 500 is enjoying a valuation that can only be described as ‘enthusiastic.’ Mr. Powell himself noted that equity prices are ‘fairly highly valued’ – a phrase that translates to ‘dangerously inflated’ in the language of Wall Street. The Fed’s Financial Stability Report confirmed this, noting a forward price-to-earnings ratio ‘close to the upper end of its historical range.’

January concluded with an S&P 500 forward P/E multiple of 22.2, significantly above the ten-year average of 18.8. Such valuations have only been seen during two previous epochs: the dot-com bubble and the Covid-19 pandemic. Both, as history recalls, were followed by rather unpleasant corrections. A pattern, wouldn’t you agree?

These forward P/E ratios are based on optimistic earnings projections. Should those projections prove overly ambitious – and tariffs certainly don’t help – the market could experience a rather abrupt awakening. A rude awakening, perhaps, involving a sharp decline, or even…a crash. A word best avoided, naturally, but one that lingers in the back of every sensible investor’s mind.

Should you liquidate your entire portfolio? Absolutely not. Trying to time the market is a fool’s errand, akin to predicting the whims of a capricious deity. Productivity gains from artificial intelligence might offset the damage caused by tariffs, allowing stocks to avoid a bear market despite their lofty valuations. However, a degree of caution is warranted. Start with small positions, and never invest in anything you wouldn’t be comfortable holding through a substantial downturn. After all, the market has a peculiar habit of rewarding patience and punishing greed.

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2026-02-18 11:55