Finance

S&P 500’s Historic High: Can Investors Survive the Perfect Economic Storm?

U.S. stocks fell sharply in Nov 2025 due to weak consumer sentiment, high valuations, and economic concerns.

November 11, 2025, 9:35 AM

A close-up of a computer screen displaying the S&P 500 index and green/red candlestick charts.

A computer screen showing analytical data and a rising candlestick graph for the S&P 500. By Gorodenkoff / Shutterstock.com.

Executive Summary

U.S. stock market indexes experienced a notable decline in early November 2025, with the Nasdaq seeing its worst weekly performance since President Trump announced sweeping tariffs.

The market downturn is driven by multiple economic anxieties, including a record 40-day government shutdown, a weakening labor market, and rising consumer expectations for inflation.

Consumer sentiment registered its second-worst reading in nearly five decades, while the S&P 500’s forward price-to-earnings ratio reached a historic high of 23.1, a level that previously preceded bear markets.

The Story So Far

The U.S. stock market downturn is primarily driven by a confluence of negative economic indicators, including a record-long government shutdown, a weakening labor market with slowing hiring and rising layoffs, and increasing consumer expectations for inflation. These factors contribute to a near-historic low in consumer sentiment, indicating widespread pessimism, while the S&P 500’s historically high valuation further suggests an overextended market susceptible to corrections.

Why This Matters

The recent decline in U.S. stock indexes, including the Nasdaq’s worst weekly performance since President Trump announced tariffs, reflects a growing economic uncertainty driven by a prolonged government shutdown, a weakening labor market, and near-record low consumer sentiment. This confluence of factors, coupled with rising inflation expectations and a historically high S&P 500 valuation reminiscent of periods preceding past bear markets, signals a potential for sustained market volatility and a significant slowdown in consumer spending, which is a critical driver of overall economic expansion.

Who Thinks What?

Investors are grappling with multiple economic anxieties, including a record government shutdown, a weakening labor market, and a historically high S&P 500 valuation, leading to a notable decline in stock market indexes.

Consumers are exhibiting historically low sentiment and rising inflation expectations, indicating a pessimistic outlook on personal finances and future business conditions.

S&P 500 companies are reporting strong third-quarter earnings that surpass Wall Street’s expectations and are on track for double-digit growth, suggesting a disconnect between corporate performance and broader market sentiment.

U.S. stock market indexes experienced a notable decline in early November 2025, with the S&P 500 falling 1.6% and the technology-heavy Nasdaq Composite tumbling 3%. This downturn, the Nasdaq’s worst weekly performance since President Trump announced sweeping tariffs in April, occurred amid a confluence of concerning economic indicators, including a historically high S&P 500 valuation and a near-record low consumer sentiment reading.

Economic Headwinds Emerge

Investors are grappling with multiple economic anxieties. A government shutdown had persisted for a record 40 days as of November 9. Concurrently, the labor market showed signs of weakening, with hiring slowing sharply over the summer and layoffs reaching a 22-year high in October, according to outplacement firm Challenger, Gray & Christmas.

Despite these concerns, S&P 500 companies are reporting third-quarter earnings that have surpassed Wall Street’s expectations. Earnings are also on pace to achieve double-digit growth for the fourth consecutive quarter, indicating a disconnect between corporate performance and broader market sentiment.

Consumer Sentiment Nears Historic Low

The University of Michigan Consumer Sentiment Index registered a preliminary reading of 50.3 in November, marking the second-worst result in the survey’s nearly five-decade history. This index, which gauges consumer perceptions of personal finances and business conditions, has now deteriorated for four consecutive months.

Alongside the decline in sentiment, consumer expectations for inflation have risen. Consumers anticipate inflation to reach 4.7% over the next 12 months, a slight increase from the previous month and above the five-year average of 4.1%. This aligns with concerns expressed by businesses, as 42% of S&P 500 companies cited inflation as an issue during their latest earnings calls, a 6-point rise from the prior quarter.

S&P 500 Valuation Reaches Historic High

In late October, the S&P 500 achieved a forward price-to-earnings (P/E) ratio of 23.1, a valuation level seen only once before in the last 25 years, according to FactSet Research. The previous instance occurred in September 2020, when investors displayed high confidence in the Covid-19 recovery, supported by government stimulus measures.

That prior period of elevated valuation ultimately preceded bear markets for all three major U.S. stock market indexes. The S&P 500 dropped 25% by October 2022 after peaking in January 2022. The Nasdaq Composite fell 36% by December 2022 from its November 2021 peak, and the Dow Jones Industrial Average declined 22% by September 2022 after peaking in January 2022.

Outlook

The combination of weakening consumer sentiment, rising inflation expectations, a fragile labor market, and a historically high S&P 500 valuation suggests a period of heightened uncertainty for the U.S. stock market. Consumer spending, which accounts for approximately two-thirds of gross domestic product, remains a crucial driver of economic expansion, and its suppression could have broader implications.