My new theory on the markets, tariffs, and where I think we end up

Hey everyone, I’ve got a theory on why the stock market’s been tanking since President Trump dropped those global tariffs, and why it’s actually a *good* thing in the long run. The S&P 500 was riding high, peaking around 6,100 with a crazy P/E ratio of 27, way above the historical norm of 15-17. That’s like the market was pricing stocks as if they were as safe as government bonds, betting Uncle Sam would swoop in with bailouts no matter what. But those tariffs threw a wrench in that fantasy, and now the market’s waking up. Instead of panicking, I think this is the start of a healthy reset that’ll make things better for all of us.

Here’s the deal: that sky-high P/E of 27 meant stocks were overvalued, with prices out of whack compared to what companies were actually earning. Investors got cocky, throwing cash at anything with a ticker symbol, assuming the government had their back. But tariffs mean higher costs and slimmer profits, and suddenly, nobody’s so sure about those bailouts. The market’s now scrambling to find a more realistic P/E, closer to the historical average of 15. This shakeout is painful, nobody likes seeing their portfolio bleed, but it’s like clearing out a cluttered garage. It forces money to flow to companies that deserve it, not just the ones riding the hype train.

Let’s break it down with some quick math to see where this might land. At its peak of ~6,100, the S&P 500 had a P/E of 27, which means earnings were about 226 (6,100 ÷ 27). If the market corrects to a P/E of 15, keeping those same earnings, the S&P would settle around 3,390 (226 × 15). That’s a big drop, about 44% from the top, but it’s not the end of the world. It’s the market getting back to reality, pricing stocks based on what companies actually produce instead of blind optimism. Sure, it stings now, but this kind of reset stops the bubble from growing until it pops way worse later.

Why’s this a win? Because a market with a sane P/E rewards good businesses, the ones innovating, growing, and delivering real value. Right now, too much cash is tied up in overpriced stocks that don’t justify their valuations. This correction, sparked by the tariff shock, is like hitting the refresh button. It’ll hurt short-term, no question, but long-term, it means capital goes where it’s most effective, building stronger companies and a healthier economy. So yeah, the market’s rough, but I’m betting this rebalance sets us up for something better.

What do you all think?