How should investors think as the stock market approaches the P/E ratio of 30 – which is a number of disasters that have been clarified before Dotcom’s failure

On the overall scene, signs of risk are multiplied. The latest employment report from the Labor Statistics Office revealed that the United States added 73,000 small jobs in July, and the May and June numbers were radically revised, which led to a total net recruitment during the past three months to only 106,000, less than the fourth increase for the same period last year. Heather Long, the chief economist in Federal Maritime Credit UnionAnd describing weak data as a “changing games” that shows that “the labor market is deteriorating quickly.”

GDP growth also has also proven disappointing, as he scored much less than the Tram’s very ambitious target by 3 %. The economy expanded in an annual clip by only 1.75 % during the first half of 2025, as it decreased from an average of 2.7 % in the third and Q4 quarter of last year. The CBO budget office expects lukewarm expansion from 1.7 % to 1.8 % from 2026 to 2035, and is almost not quickly enough Reducing the federal religion The agency’s projects will be enlarged from 100 % national income this year to 110 % by 2031.

On the inflation front, Trump’s tariff appears to be I finally began to bite. The Ministry of Labor Product Price Index increased by 0.9 % in June, which is the largest increase in almost three years. It is not clear whether Trump’s duties caused the increase, but at least amount to an increase in the giant tax. The Tax Corporation, which will cost consumers and companies, is approaching approximately 200 billion dollars annually, equivalent to about 6 % of Washington’s total that was collected last year in all personal income operations and companies, and becomes the largest larger success since 1993. On average, Americans will spend after taxes, and leave everything beyond. CBO looks at Trump’s tariff as it is blind to growth that her director recently told Congress “will reduce the size of the American economy” to move forward.

The full power of effective national sales tax is a building. Corporate procession including Wal Martand goaland NintendoFord and Gunral Motors said that although they swallowed part of the tariff costs, they are, but they are I have already started passing part of the burden on consumersIts narrow margin will impose a greater increase in the future.

The residential real estate market, for each of the sales and construction, is still arrogant with a set of standard housing prices and the real estate mortgage rates that are approximately 6.7 %, twice the cost three and a half years. Young families who face the gap may have the ability to withstand costs to continue to rent and abandon ownership for a period of longer than previous generations. This GridLock is to get rid of strength in the nation.

The main hope for the upcoming investors: a Reducing the Federal Reserve rate in September And a series of additional discounts that reach later this year and 2026. Although markets are now evaluating the possibility of a significant reduction from the current measurement from 4.3 % to 4.5 % as virtual certainty, the possibility has not led to a significant decrease in the important number: the return on the cabinet for a period of 10 years, which determines these basics such as home costs and pressure on cars. This figure is fixed in about 4.3 %, just as it was standing before the exposure of the liberation day tariffs in early April.

Why are the stocks very high now?

This faded background stands at odds with high stock assessments. Prices are so extended to the point that they risk a sharp decrease, or at the minimum of weak gains looking forward. Problem: The S& P 500 fees exceeds profit in profits. Upon closing the market on August 14, the large CAP index recorded another record at 6469. Starting from the first quarter of 2025, a quarter of the last full profits, and the S&P 500 profits per share, based on the results of 12 months, at 216.69 dollars. Consequently, the S&P PRICE-To-Nernings has reached 29.85 (6,469 divided into $ 216.69)-I will play to 30. According to historical standards, he is a giant and even frightening personality.

The amount is $ 3.30 that investors get for every $ 100, as they represent at the S&P 500 worst in the last days before the collapse of technology madness in early 2002. The/E market has already reached a little more than 30 for five other periods in approximately general position. With the exception of those special cases in which the profits of the arrow (EPS) collapsed and artificially amplified, this is the first time that P/E has reached a width of 30 years because what is famous as one of the most unfamiliar times in the financial market records.

It is also a warning that the P/E hit only 30 in just one period between 1888, when the data begins, and the beginning of the Dotcom takes off in 1998. The teacher we have just seen in 1929, shortly before the seizure of great depression.

What is particularly concerned is the way in which multiple has reached its current heights. The main driver was not the most important: height of profits. Since the pre -end of 2019, the EPS for the S&P 500 increased by 67 % or 9 % annually, while the indicator has increased significantly by 120 %, or 14 % per year. It is the one that spacted, running offers that raise P/E from 22 to 30.

Of course, given that Warren Buffett loves to notice him, the stocks compete with investor money bonds, and low interest rates are great for stocks. But in the past two years, we have seen the opposite scenario. The bond returns after years in the cellar rose to something like regular levels, making the cabinet much more attractive today than it was when it has achieved 10 years on average 2.2 % than 2015 to early 2022. They are now paying this voucher of this voucher by 4.3 %, while the profits are returning to stocks-i.e. $ 3.30 for every $ 100 paid by HAS DWINDLED.

Where will the stock market go from here?

In fact, the excellent agent of the expected returns in the future on shares is that the return on profits, which is now sitting by 3.3 %. Suppose the Consumer Prices Index (CPI) maintains a 2.5 % jamming – which means that companies raise their prices and profits at this pace – and will get a total profit of 5.8 % annually. The S&P 1.2 % profit revenue represents this number. By the way, this small cash payment embodies the reason for the appearance of shares. Here are mathematics, which is simple: even on the assumption that P/E carries on 30 today, you will only get 5.8 % (profit returns by 3.3 % in addition to inflation by 2.5 %) – only 40 % of luxury since the summer of 2019.

But what happens if this multiple is tolerated, for example, is still high 25 during the next half of the nodes? In this case, by August 2030, the contraction in P/E is completely erased by profit growth, as well as the contribution of profits, and the S&P shares will not appear ever. You will lose something like 10 % for inflation. Market Moonshot was great for the people who believed and remained invested. Despite the assertions of Wall Street Banks and TV Pundits, the argument related to the arrows is much more than that by taking off, the attractiveness of bonds is much larger. You never know when it will take gravity, just this is always what happens.