President Trump's tariffs have tipped the economy toward stagflation, but investors have another serious problem in the stock market's elevated valuation.

U.S. stocks have been unusually volatile this year. The benchmark S&P 500 ( ^GSPC -0.15% ) dropped more than 10% in two days in early April after President Trump outlined sweeping "Liberation Day" tariffs. Those rapid losses led to the third largest weekly spike in history in the Cboe Volatility Index as economists warned of dire consequences from the abrupt shift in U.S. trade policy.

However, Trump softened his stance on tariffs to some degree and the U.S. stock market staged a remarkable comeback. The S&P 500 surged 26% during the three-month period that ended July 10, something the index had only accomplished five times b

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