Recent analyses indicate that President Trump’s tariffs could negatively impact U.S. economic growth, a troubling insight especially considering the S&P 500 is currently trading at its highest valuation since the dot-com bubble. Since Trump took office, the S&P 500 has increased by 15%. However, this growth has occurred amidst significant changes in trade policy, marked by extensive tariffs that are now becoming detrimental to the economy.
The unemployment rate has notably risen from 4% in January 2025 to 4.6% by November 2025, representing the highest jobless figure since September 2021. Additionally, the U.S. economy reported an average of only 55,000 jobs added each month through November 2025, the lowest rate of job growth outside the pandemic era since the Great Recession. Consumer sentiment has also taken a hit, recording its lowest average ever in 2025, a stark moment considering that data collection began in 1952 by the University of Michigan.
Against this backdrop, recent evidence regarding the impact of Trump’s tariffs has emerged, raising fresh concerns about the economic forecast. Last year, Trump introduced tariffs ranging from 10% to 50% on various goods, leading to an increase in the average tax on U.S. imports to about 16%—the highest level since the 1930s, according to JPMorgan Chase. Trump had previously asserted that foreign nations would bear the burden of these tariffs, suggesting that such tariffs would revitalize U.S. manufacturing and job creation.
However, data challenges these assumptions. A report from Goldman Sachs states that U.S. companies and consumers effectively absorbed 82% of the tariff costs as of October 2025, with an expectation that this would still be around 75% by mid-2026. The Institute for Supply Management noted a persistent decline in manufacturing activity for ten consecutive months, attributing this downturn in part to the unpredictability surrounding tariff costs—contrary to claims of a manufacturing resurgence.
Moreover, statistics from the Bureau of Labor Statistics indicate that the ratio of unemployed individuals to job openings reached the highest level since 2021, at 1.1, while job openings averaged 7.4 million through November, the lowest figure since 2020. These data points suggest that Trump’s tariffs are indeed making it more challenging for Americans to find employment, contradicting earlier assertions of job growth.
Looking at the broader picture, the continuation of these trends could present significant challenges for the economy. The Tax Foundation has projected that these tariffs could lead to a 0.5% reduction in GDP over the next decade.
Compounding these economic concerns, the S&P 500 experienced a troubling uptick in its cyclically adjusted price-to-earnings (CAPE) ratio, which reached an average of 39.9 in December, the highest level since October 2000. Historically, markets have generally underperformed when such ratios are elevated. Data shows that following instances of a CAPE exceeding 39, the S&P 500 has had an average reduction of 4% over the following year, with returns worsening over longer periods.
Despite these worrying signals, some investors could remain optimistic, considering the potential of artificial intelligence (AI) to enhance profit margins and drive earnings growth in the future. However, the adverse implications of Trump’s tariffs may temper the positive effects of AI, as companies either absorb the costs or pass them along to consumers, ultimately leading to reduced corporate earnings.
In light of the historical data indicating a downward trend in the stock market over the next two years, experts advise that investors take a cautious approach. Recommendations include selectively purchasing only high-conviction stocks, divesting from any assets that lack confidence, and potentially building cash positions in their portfolios as a buffer against uncertain market conditions.
