President Trump's tariffs have created cracks in the economy at a time when the stock market is already historically expensive.

The S&P 500 ( ^GSPC 0.06% ) crashed in early April when President Trump announced sweeping tariffs on most countries, but the index bounced back remarkably quickly due to strong earnings growth and economic resilience. With the S&P 500 up 13% in 2025, the index is on track for its the third straight year of double-digit gains, something that has only happened twice since 2000.

However, the picture is less rosy than it appears. Revised jobs data shows hiring slowed sharply over the summer as businesses navigated economic uncertainty, and inflation has trended steadily higher since Trump announced his most severe tariffs in April. Meanwhile, investors just

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