Tariffs vs. Valuations: Which One Should You Really Worry About?

Markets thrive on confidence, but what happens when uncertainty takes over? Right now, investors have two major concerns: tariffs and sky-high valuations. Could these disrupt the market?

Well, I’ll tell you right now—only one of these is a real concern, and the other? You can completely ignore it.

Understanding Tariffs and Their Impact

Let’s break it down. A tariff is simply a tax or duty imposed by a government on imported or exported goods. The goal? To regulate trade, encourage consumers to buy domestic products, and protect jobs. Sounds good in theory, but the reality is different.

Recently, President Trump imposed:

• 25% tariffs on all imports from Canada and Mexico.
• 10% tariffs on energy products from China.
• 10% tariffs on overall imports.

How does this affect everyday consumers like you and me? Let’s look at real-world examples:

Price Increases Across Industries

• Consumer Electronics – Prices rise for smartphones, laptops, and gaming consoles—things we all rely on daily.
• Automobiles – A 25% tariff increases new car prices by an average of $2,700 per car. That’s a big deal.
• Agriculture – Higher prices for avocados from Mexico and maple syrup from Canada.
• Fashion – 10% tariffs on Chinese products, impacting brands like Shein and Temu, plus the end of duty-free packages under $800.

At the end of the day, people love to complain about "cheap Chinese products," but let’s be real—almost everything we buy is made in China. We rely on China, and China relies on us.

Do Tariffs Actually Matter?

Here’s the thing—tariffs don’t concern me.

Back in 2018, when tariffs were placed on China, a business partner of mine reminded me how unfazed my team was. We just found another country to import from—and that was it. It didn’t affect us long-term.

Tariffs are often framed as a way to protect U.S. jobs, but they’re really just a tax on the consumer. Either we pay more for foreign goods, or we pay more to manufacture domestically. There’s no way around it.

Some economists warn that tariffs could increase inflation. The Consumer Price Index (CPI) is expected to rise 2.7% in December 2025 compared to the previous year.

But let’s be honest—economists are notoriously wrong. And 2.7% inflation? That’s manageable.

In the short run, tariffs might shake investor sentiment, but they won’t crash the market. Historically, major market events (like 9/11 or financial crises) have had much bigger impacts than tariffs.

Bottom line: Don’t worry about tariffs. They’re a short-term headline, not a long-term market killer.

The Real Threat: Market Valuations

Now let’s talk about what actually matters—stock market valuations.

There are two major valuation metrics I focus on:

1. Stock Market-to-GDP Ratio
2. 10-Year Cyclically Adjusted PE Ratio (CAPE)

Stock Market-to-GDP Ratio

This metric compares the total market value of stocks to GDP—essentially, how inflated stock prices are relative to the economy.

Right now:

• S&P 500 is at 6,670.
• Q4 2024 GDP was $29.7 trillion.
• We’re 116% overvalued based on historical trends!

To put that in perspective, during the 2000 Tech Bubble, we were only 54.5% overvalued—and we all know how that ended.

Historically, when the market is 50%+ overvalued, the average 10-year return has been -0.3% per year (excluding dividends). That’s a terrible long-term outlook compared to the historical average of 6.94% per year.

10-Year CAPE Ratio

This measures stock prices relative to 10 years of inflation-adjusted earnings.

Right now:

• CAPE Ratio: 38.23
• Historical Average: 17.17
• Overvaluation: 122%!

These extreme levels have only been seen a few times in history:

• 1929 (before the Great Depression)
• 1999 (before the Dot-Com Bubble)
• 2007 (before the Financial Crisis)

And guess what? In 1929, the Dow fell 86%.

Do I think we’ll see an 86% crash? No. But I do believe the next 5–10 years will deliver poor stock market returns—and likely, a major crash along the way.

How to Invest in an Overvalued Market

1. Ignore Tariffs, Focus on Great Companies

Worrying about tariffs is a waste of time. Instead, buy great companies at great prices.

Bad businesses fail during tough times—that’s a good thing. We want strong companies to survive and thrive.

2. Stick to Low-Cost ETFs and Dollar-Cost Averaging

Expect subpar returns over the next decade, but dollar-cost averaging will still serve you well.

Remember the 2000–2003 NASDAQ crash? It fell 83%, but if you dollar-cost averaged from the peak, your return since then would be 15% annualized.

Even if the NASDAQ drops 70% from here, long-term investors will still get 9–10% annualized returns. That’s the power of sticking to a strategy.

3. Join a Community of Smart Investors

If you want quick stock picks, there are plenty of scammers on YouTube selling nonsense.

But if you want to learn how to invest properly, be around like-minded investors, and develop a principled, long-term strategy—then join our community.

• We don’t chase hype stocks.
• We focus on data, fundamentals, and long-term success.

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