Trump Policies Raise Risk of Market Meltdown as Valuation Metric Hits Record High

The S&P 500 index is trading near its all-time high, but market experts warn that it's not entirely clear sailing. The S&P 500 Shiller CAPE ratio, a valuation metric created by economist Robert Shiller, has risen above 35 only twice since 1871.

Both times, the market experienced significant downturns. The first time was in late 1999 and early 2000, when the dot-com bubble burst after corporate earnings multiples skyrocketed during the internet boom of the 1990s.

The second time was in 2021, when the S&P 500 Shiller CAPE ratio reached above 38. The Fed began raising interest rates to fight soaring post-pandemic inflation, causing the stock market to plummet into a bear market.

Today, the S&P 500 Shiller CAPE ratio stands at slightly above 41, its highest level since the peak of the dot-com bubble. President Trump's policies are also contributing to market uncertainty, with steep tariffs driving higher inflation and increasing interest rate volatility.