Stock Market Investors Got a Warning From Fed Chair Jerome Powell in 2025. History Says This Will Happen in 2026.

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has a CAPE ratio of 39.4, a level that has historically correlated with losses during the next year.10 stocks we like better than S&P 500 Index ›The benchmark S&P 500 (SNPINDEX: ^GSPC) index has returned an impressive 18% so far in 2025 despite the economic uncertainty created by President Donald Trump's trade policies. After decades when the nation's average tariff rate on its trade partners was below 3%, he has hiked the average tax on U.S. imports to 17%, according to the Budget Lab at Yale.After Trump announced his most severe tariffs in April, the S&P 500 dropped by 19%, and many economists forecast that the U.S. would enter a recession. But the economy has continued to grow at a robust pace, likely because high spending on artificial intelligence (AI) infrastructure has so far offset the negative impacts of tariffs."In the first half of 2025, AI-related capital expenditures contributed 1.1% to GDP growth, outpacing the U.S. consumer as an engine of expansion," wrote JPMorgan Chase strategist Stephanie Aliaga. In turn, the S&P 500 has posted gains in every month since its plunge in April, as the market has become increasingly confident in the economy's resilience.However, Federal Reserve Chairman Jerome Powell and other policymakers are warning that stocks have become unusually expensive. In fact, the S&P 500 currently trades at one of its most expensive valuations in history, and the patterns of past cycles suggest a decline is ahead in 2026.Image source: Federal Reserve.The Federal Reserve does not attempt to influence stock prices with its monetary policy, nor does it take an official stance on what the correct prices would be for any particular financial assets. Nevertheless, Powell in September warned investors, "By many measures... equity prices are fairly highly valued."Other policymakers have expressed similar concerns. Fed Governor Lisa Cook said she would not be surprised by "outsized asset price declines." And the minutes from the Federal Open Market Committee's October meeting state: "Some participants commented on stretched asset valuations in financial markets, with several of these participants highlighting the possibility of a disorderly fall in equity prices."Terms and Privacy PolicyPrivacy & Cookie SettingsMore InfoS&P 5006,929.94 -2.11 (-0.03%)Dow 3048,710.97 -20.19 (-0.04%)Nasdaq23,593.10 -20.21 (-0.09%)Russell 20002,534.35 -13.74 (-0.54%)VIX13.60 +0.13 (+0.97%)Gold4,552.70 +49.90 (+1.11%)Trending tickersBTC-USD Bitcoin USD 87,875.85 +339.16 (+0.39%)ETH-USD Ethereum USD 2,940.02 +8.97 (+0.31%)XRP-USD XRP USD 1.87 +0.02 (+0.94%)CVNA Carvana Co. 438.47 -3.10 (-0.70%)SOL-USD Solana USD 124.37 +1.36 (+1.10%)PortfolioSign in to access your portfolioSign inTop gainersELPC Companhia Paranaense de Energia 9.65 +0.79 (+8.92%)PSLV Sprott Physical Silver Trust 26.04 +2.08 (+8.68%)ZETA Zeta Global Holdings Corp. 20.70 +1.59 (+8.32%)CPNG Coupang, Inc. 24.27 +1.47 (+6.45%)XPEV XPeng Inc. 20.78 +1.21 (+6.18%)Top losersRGC Regencell Bioscience Holdings Limited 21.16 -3.44 (-13.98%)FLY Firefly Aerospace Inc. 23.34 -3.70 (-13.68%)TMC TMC the metals company Inc. 6.82 -0.80 (-10.50%)AAOI Applied Optoelectronics, Inc. 37.17 -3.83 (-9.34%)RGTI Rigetti Computing, Inc. 22.38 -2.13 (-8.69%)Most activeNVDA NVIDIA Corporation 190.53 +1.92 (+1.02%)TSLA Tesla, Inc. 475.19 -10.21 (-2.10%)PLUG Plug Power Inc. 2.0700 -0.0300 (-1.43%)ONDS Ondas Holdings Inc. 8.48 -0.65 (-7.12%)NIO NIO Inc. 5.10 +0.19 (+3.87%)Top economic eventsEarnings eventsMy earnings eventsEarnings events