Technologies

Trump’s Tariffs Explained: What You Need to Know as Inflation Picks Up Again

With inflation creeping back into the US economy, it’s as important as ever to have a firm grasp on Donald Trump’s tariffs and what they mean.

The One Big Beautiful Bill might’ve made it across the finish line but tariffs still remain the dominant focus of President Donald Trump’s economic agenda. This is especially true as the US Labor Department announced recently that consumer prices rose 2.7% in June, the highest spike since February, and a report from CNBC found that prices at Walmart, one of the largest retailers in the US, have steadily gone up since Trump’s tariffs entered the conversation.

After unleashing market chaos on April 2 (“Liberation Day”) when he unveiled a laundry list of heavy tariffs for countries around the world, they were paused for 90 days after the stock market dramatically tumbled. That 90-day pause was supposed to end earlier this month but have been been extended again through Aug. 1. More recently, the administration hiked tariffs against Canada to 35% and threatened Brazil with a 50% rate.

Amid the uncertainties and upheavals, Trump has barreled forward with his plans, including doubling the tariffs on steel and aluminum imports and announcing a new plan to increase the rate for China to 55%. He also hyped up a trade deal on July 2 that leaves Vietnam’s import tax rate at a historically high 20%. The sweeping tariff initiative will likely affect your cost of living, which we know from our surveys is something you’re worried about.

That all came after Trump’s push hit its biggest roadblock yet, when the US Court of International Trade ruled late last month that Trump had overstepped his authority when he imposed tariffs. That ruling was stayed, but the fight is likely to head to the Supreme Court. All the while, major US companies like Apple and Walmart have butted heads with the administration over the tariffs and their bluntness about how tariffs will make affording things harder for consumers.

Amid all this noise, you might still be wondering: What exactly are tariffs, and what will they mean for me?

The short answer: Expect to pay more for at least some goods and services. For the long answer, keep reading, and for more, check out CNET’s price tracker for 11 popular and tariff-vulnerable products.

What are tariffs?

Put simply, a tariff is a tax on the cost of importing or exporting goods by a particular country. So, for example, a 60% tariff on Chinese imports would be a 60% tax on the price of importing, say, computer components from China.

Trump has been fixated on imports as the centerpiece of his economic plans, often claiming that the money collected from taxes on imported goods would help finance other parts of his agenda. The US imports $3 trillion worth of goods from other countries annually.

The president has also shown a fixation on trade deficits, claiming that the US having a trade deficit with any country means that country is ripping the US off. This is a flawed understanding of the matter, many economists have said, since deficits are often a simple case of resource realities: Wealthy nations like the US buy specific things from nations that have them, while those nations in turn may not be wealthy enough to buy much of anything from the US.

While Trump deployed tariffs in his first term, notably against China, he ramped up his plans more significantly for the 2024 campaign, promising 60% tariffs against China and a universal 20% tariff on all imports into the US.

“Tariffs are the greatest thing ever invented,” Trump said at a campaign stop in Michigan last year. At one point, he called himself “Tariff Man” in a post on Truth Social.

Who pays the cost of tariffs?

Trump repeatedly claimed, before and immediately after returning to the White House, that the country of origin for an imported good pays the cost of the tariffs and that Americans would not see any price increases from them. However, as economists and fact-checkers stressed, this is not the case.

The companies importing the tariffed goods — American companies or organizations in this case — pay the higher costs. To compensate, companies can raise their prices or absorb the additional costs themselves.

So, who ends up paying the price for tariffs? In the end, usually you, the consumer. For instance, a universal tariff on goods from Canada would increase Canadian lumber prices, which would have the knock-on effect of making construction and home renovations more expensive for US consumers. While it is possible for a company to absorb the costs of tariffs without increasing prices, this is not at all likely, at least for now.

Speaking with CNET, Ryan Reith, vice president of International Data Corporation’s worldwide mobile device tracking programs, explained that price hikes from tariffs, especially on technology and hardware, are inevitable in the short term. He estimated that the full amount imposed on imports by Trump’s tariffs would be passed on to consumers, which he called the “cost pass-through.” Any potential efforts for companies to absorb the new costs themselves would come in the future, once they have a better understanding of the tariffs, if at all.

Which Trump tariffs have gone into effect?

Following Trump’s “Liberation Day” announcements on April 2 and subsequent shifting by the president, the following tariffs are in effect:

A 50% tariff on all steel and aluminum imports, doubled from 25% as of June 4.
A 30% tariff on all Chinese imports until the new deal touted by Trump takes effect, after which it will purportedly go up to 55%. China being a major focus of Trump’s trade agenda, it has faced a rate notably higher than other countries, peaking at 145% before trade talks commenced.
25% tariffs on imports from Mexico and 35% on those from Canada. This applies only to goods from each country that are not covered under the 2018 USMCA trade agreement brokered during Trump’s first term. The deal covers roughly half of all imports from Canada and about a third of those from Mexico, so the rest are subject to the new tariffs. Energy imports not covered by USMCA will be taxed at only 10%.
A 25% tariff on all foreign-made cars and auto parts.
A sweeping overall 10% tariff on all imported goods.

For certain countries that Trump said were more responsible for the US trade deficit, Trump imposed what he called “reciprocal” tariffs that exceed the 10% level: 20% for the 27 nations that make up the European Union, 26% for India, 24% for Japan and so on. These were meant to take effect on April 9 but were delayed by 90 days due to historic stock market volatility, and then delayed again to Aug. 1. These rates are subject to change until that new effective date, and some have already been altered: the rate against Japan was upped to 25%, the same as the rate against South Korea; Trump has also threatened a 50% rate against Brazil. Another deal announced on July 23 lowered Japan’s rate to 15%.

pic.twitter.com/v5WMU5wofc

— Rapid Response 47 (@RapidResponse47) April 2, 2025

Trump’s claim that these reciprocal tariffs are based on high tariffs imposed against the US by the targeted countries has drawn intense pushback from experts and economists, who have argued that some of these numbers are false or potentially inflated. For example, the above chart says a 39% tariff from the EU, despite its average tariff for US goods being around 3%. Some of the tariffs are against places that are not countries but tiny territories of other nations. The Heard and McDonald Islands, for example, are uninhabited. We’ll dig into the confusion around these calculations below.

Notably, that minimum 10% tariff will not be on top of those steel, aluminum and auto tariffs. Canada and Mexico were also spared from the 10% minimum additional tariff imposed on all countries the US trades with.

On April 11, the administration said smartphones, laptops and other consumer electronics, along with flat panel displays, memory chips and semiconductors, were exempt from reciprocal tariffs. But it wasn’t clear whether that would remain the case or whether such products might face different fees later.

How were the Trump reciprocal tariffs calculated?

The numbers released by the Trump administration for its barrage of “reciprocal” tariffs led to widespread confusion among experts. Trump’s own claim that these new rates were derived by halving the tariffs already imposed against the US by certain countries was widely disputed, with critics noting that some of the numbers listed for certain countries were much higher than the actual rates and some countries had tariff rates listed despite not specifically having tariffs against the US at all.

In a post to X that spread fast across social media, finance journalist James Surowiecki said that the new reciprocal rates appeared to have been reached by taking the trade deficit the US has with each country and dividing it by the amount the country exports to the US. This, he explained, consistently produced the reciprocal tariff percentages revealed by the White House across the board.

Just figured out where these fake tariff rates come from. They didn’t actually calculate tariff rates + non-tariff barriers, as they say they did. Instead, for every country, they just took our trade deficit with that country and divided it by the country’s exports to us.
So we… https://t.co/PBjF8xmcuv

— James Surowiecki (@JamesSurowiecki) April 2, 2025

“What extraordinary nonsense this is,” Surowiecki wrote about the finding.

The White House later attempted to debunk this idea, releasing what it claimed was the real formula, though it was quickly determined that this formula was arguably just a more complex version of the one Surowiecki deduced.

What will the Trump tariffs do to prices?

In short: Prices are almost certainly going up, if not now, then eventually. That is, if the products even make it to US shelves at all, as some tariffs will simply be too high for companies to bother dealing with.

While the effects of a lot of tariffs might not be felt straight away, some potential real-world examples have already emerged. Microsoft has increased prices across the board for its Xbox gaming brand, with its flagship Xbox Series X console jumping 20% from $500 to $600. Kent International, one of the main suppliers of bicycles to Walmart, announced that it would be stopping imports from China, which account for 90% of its stock.

Speaking about Trump’s tariff plans just before they were announced, White House trade adviser Peter Navarro said that they would generate $6 trillion in revenue over the next decade. Given that tariffs are most often paid by consumers, CNN characterized this as potentially “the largest tax hike in US history.” Estimates from the Yale Budget Lab, cited by Axios, predict that Trump’s new tariffs will cause a 2.3% increase in inflation throughout 2025. This translates to about a $3,800 increase in expenses for the average American household.

Reith, the IDC analyst, told CNET that Chinese-based tech companies, like PC makers Acer, Asus and Lenovo, have “100% exposure” to these import taxes, with products like phones and computers the most likely to take a hit. He also said that the companies best positioned to weather the tariff impacts are those that have moved some of their operations out of China to places like India, Thailand and Vietnam, singling out the likes of Apple, Dell and HP. Samsung, based in South Korea, is also likely to avoid the full force of Trump’s tariffs.

In an effort to minimize its tariff vulnerability, Apple has begun to move the production of goods for the US market from China to India.

Will tariffs affect prices immediately?

In the short term — the first days or weeks after a tariff takes effect — maybe not. There are still a lot of products in the US imported pre-tariffs and on store shelves, meaning the businesses don’t need a price hike to recoup import taxes. Once new products need to be brought in from overseas, that’s when you’ll see prices start to climb because of tariffs or you’ll see them become unavailable.

That uncertainty has made consumers anxious. CNET’s survey revealed that about 38% of shoppers feel pressured to make certain purchases before tariffs make them more expensive. About 10% say they have already made certain purchases in hopes of getting them in before the price hikes, while 27% said they have delayed purchases for products that cost more than $500. Generally, this worry is the most acute concerning smartphones, laptops and home appliances.

Mark Cuban, the billionaire businessman and Trump critic, voiced concerns about when to buy certain things in a post on Bluesky just after Trump’s “Liberation Day” announcements. In it, he suggested that consumers might want to stock up on certain items before tariff inflation hits.

“It’s not a bad idea to go to the local Walmart or big box retailer and buy lots of consumables now,” Cuban wrote. “From toothpaste to soap, anything you can find storage space for, buy before they have to replenish inventory. Even if it’s made in the USA, they will jack up the price and blame it on tariffs.”

CNET’s Money team recommends that before you make any purchase, especially a high-ticket item, be sure that the expenditure fits within your budget and your spending plans. Buying something you can’t afford now because it might be less affordable later can be burdensome, to say the least.

What is the goal of the White House tariff plan?

The typical goal behind tariffs is to discourage consumers and businesses from buying the tariffed, foreign-sourced goods and encourage them to buy domestically produced goods instead. When implemented in the right way, tariffs are generally seen as a useful way to protect domestic industries.

One of the stated intentions for Trump’s tariffs is along those lines: to restore American manufacturing and production. However, the White House also says it’s negotiating with numerous countries looking for tariff exemptions, and some officials have also floated the idea that the tariffs will help finance Trump’s tax cuts.

Those things are often contradictory: If manufacturing moves to the US or if a bunch of countries are exempt from tariffs, then tariffs aren’t actually being collected and can’t be used to finance anything. This and many other points have led a lot of economists to allege that Trump’s plans are misguided.

As for returning — or “reshoring” — manufacturing in the US, tariffs are a better tool for protecting industries that already exist because importers can fall back on them right away. Building up the factories and plants needed for this in the US could take years, leaving Americans to suffer under higher prices in the interim.

That problem is worsened by the fact that the materials needed to build those factories will also be tariffed, making the costs of “reshoring” production in the US too heavy for companies to stomach. These issues, and the general instability of American economic policies under Trump, are part of why experts warn that Trump’s tariffs could have the opposite effect: keeping manufacturing out of the US and leaving consumers stuck with inflated prices. Any factories that do get built in the US because of tariffs also have a high chance of being automated, canceling out a lot of job creation potential. To give you one real-world example of this: When warning customers of future price hikes, toy maker Mattel also noted that it had no plans to move manufacturing to the US.

Trump has reportedly been fixated on the notion that Apple’s iPhone — the most popular smartphone in the US market — can be manufactured entirely in the US. This has been broadly dismissed by experts, for a lot of the same reasons mentioned above, but also because an American-made iPhone could cost upward of $3,500. One report from 404 Media dubbed the idea “a pure fantasy.” The overall sophistication and breadth of China’s manufacturing sector have also been cited, with CEO Tim Cook stating in 2017 that the US lacks the number of tooling engineers to make its products.

For more, see how tariffs might raise the prices of Apple products and find some expert tips for saving money.

Technologies

U.S. diesel price tops $6 per gallon, a record high as Ukraine and Iran wars ripple through economy

U.S. diesel prices hit their highest level ever as fuel supply disruption stemming from the Ukraine and Iran wars lifts transportation costs.

U.S. diesel prices hit $6 per gallon on Friday for the first time ever, as fuel supply disruptions triggered by the Ukraine and Iran wars raises transportation costs across the entire economy.

Truckers and farmers are paying about 63% more to fill up their semis and tractors than they did at this time last year, according to data from AAA. The average price nationwide is now about $6.06 per gallon.

Prices are even higher in California, the biggest agriculture state in the U.S., at $7.98 per gallon.

Fuel costs are rising as crude oil prices have surged in response to a sharp escalation in fighting between the U.S. and Iran this month. U.S. crude oil futures topped $100 per barrel on Thursday for the first time since May. The contract has gained about 20% in September.

Diesel is the real lifeblood of the economy even though consumers tend to pay more attention to retail gasoline prices, said Bob McNally, president of Rapidan Energy, in an interview with CNBC’s “The Exchange” on Tuesday.

Higher diesel prices are passed down to consumers in what they pay for food, consumer goods and energy. Diesel fuels the trucks, trains and ships that bring goods to market. It powers the machinery that farmers use to plant and harvest food. And it heats homes and generates electricity in some cases.

This content is blocked because you are not allowing cookies.

To view this content, click on Cookie Preferences here or at the bottom of the page to allow all cookies.

“It’s the more insidious, more costly, and more impactful fuel,” McNally said. “As we climb higher, it is a real concern.”

Diesel prices at these levels will be a “silent killer” for the economy, said Patrick De Haan, head of petroleum analysis at GasBuddy, in an interview with CNBC’s “Power Lunch” Tuesday.

Gasoline prices, meanwhile, have never been this high this late in the year, De Haan said. Prices at the pump hit a Labor Day record of $4.15 per gallon earlier this week. Americans are spending about $700 million more per day on gas and diesel than they did a year ago, the analyst said.

“There’s sticker shock there for consumers,” De Haan said.

Fuel costs are rising as the Iran and Ukraine wars have disrupted global supplies. Kyiv has pounded Russian refineries, forcing Moscow to ban diesel exports. Iran and its militant Houthi allies in Yemen have also hit the refineries of U.S. Gulf allies. Fuel exports through the Strait of Hormuz are constrained due to the Iranian attacks on tankers.

The wars in Eastern Europe and the Middle East have shut down refineries with about 5 million barrels per day of capacity, said Valero Chief Operating Officer Gary Simmons on the U.S. refiner’s July 30 earnings call.

The world has lost nearly 8% of its diesel supply with little spare refining capacity available to make up the shortfall, said Andy Lipow, president of Lipow Oil Associates, in a Wednesday note.

Rising diesel prices pose an “enormous challenge” for the Trump administration, said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a Sept. 4 interview with CNBC’s “Power Lunch.”

“U.S. refineries are running at 98% utilization rates — there is just no spare capacity,” Croft said.

Technologies

Buffett’s confidence in troubled decade-old acquisition finally pays off

Warren Buffett has said he paid too much for Precision Castparts in 2016. Now its complex metal castings are in high demand.

(This is the Warren Buffett Watch newsletter, news and analysis on all things Warren Buffett and Berkshire Hathaway. You can sign up here to receive it every Friday evening in your inbox.)

Buffett’s confidence in troubled decade-old acquisition finally pays off

Six years ago, when Berkshire Hathaway took an $11 billion write-down of its $37.2 billion 2016 acquisition of Precision Castparts, Warren Buffett wrote in his annual letter to shareholders he had paid “too much” for the company, which makes “complex metal components and products.”

While it was a “fine company – the best in its business,” he had been “simply too optimistic” about its profit potential, a “miscalculation … laid bare” by the enormous downturn for the aerospace industry, Precision Castparts’ largest customers, amid the Covid pandemic.

In a CNBC interview when the deal was first announced, Buffett admitted it was “a very high multiple for us to pay,” but told shareholders at the 2016 meeting he had great confidence in Mark Donegan, the company’s CEO, both then and now, and the company’s long-term profit outlook.

It’s taken longer than he planned, but Buffett’s purchase is now looking pretty good.

As Reuters puts it, there is currently a shortage of the “complex” products Precision Castparts makes that are essential for engine turbine blades.

They’re also used in natural gas turbines, which are in demand to produce energy for artificial intelligence data centers.

This week, GE Aerospace announced it would pay $11.75 billion to acquire Consolidated Precision Products, one of the few companies that competes against Precision Castparts.

Barron’s calls that “pricey” at 26 times projected 2027 earnings before interest, taxes, depreciation, and amortization.

Using the same multiple, Barron’s estimates Precision Castparts is worth around $100 billion. That’s well above the potential value of $60 billion to $75 billion it cited in an article last month that said the unit “probably has become one of the more valuable divisions” of Berkshire.

It’s also nearly three times the 2016 purchase price.

In the Barron’s piece, Andrew Bary said Berkshire, and its share price, aren’t “getting much credit” for the subsidiary’s rising value, in part because CEO Greg Abel, like Buffett, doesn’t do analyst conference calls or investor events that could draw attention to the unit’s performance.

His recommendation: “Without Warren Buffett at the helm, Berkshire may have to start telling its story if it wants to attract a new generation of investors. This year’s trading action suggests that something may need to change.”

Berkshire bounces a bit as Wall Street sells off

Berkshire Hathaway shares managed a modest gain this week even as Wall Street’s major averages declined, a small departure from the 2026 “trading action” Bary cites.

Both the Class A and Class B shares gained almost 0.9% while the S&P 500 fell by 0.8%.

Until Friday’s bounce, that benchmark index, along with the Dow Industrials and the Nasdaq Composite, had dropped four days in a row as oil and bond yields moved higher.

Even with this week’s outperformance, Berkshire’s B shares still trail the S&P 500 by more than 10 percentage points so far this year.

Nebraska candidate moves to replace ad that included Buffett’s image

The campaign team for the Republican running in Nebraska’s 2nd Congressional District accelerated the deployment of a new campaign ad after Susie Buffett complained about a previous commercial that briefly included an image of her father, Warren Buffett.

In the ad, a picture of Buffett and his name appear on screen for roughly two seconds as candidate Brinker Harding says, “Here in Omaha, we know a thing or two about the stock market, some more than others. But we do it without insider information.”

He then goes on to highlight his call for a ban on Congressional stock trading, saying some lawmakers “trade on secrets you’ll never know,” as they “get rich” while “we barely get by.”

In a report that led its 10 PM CT newscast Wednesday evening, ABC affiliate KETV in Omaha reported Susie Buffett had asked Harding on Sept. 2 to remove the ad.

She told the station, “I think it’s worth it to say that Warren did not give Brinker his permission to use his face or name in his ad.

“It implies that my dad endorses him. He did not have permission to use it.”

The KETV report quoted Harding as saying in a statement, “In Nebraska, we work hard and support each other, and we do it honestly. Warren Buffett exemplifies that, and that was the point of my ad.”

The report said Harding did not comment on whether the ad would be taken down but noted “it does look like new ads from his campaign are beginning to run on some stations.”

A Harding campaign spokesperson told me the campaign did not think its ad implied a Buffett endorsement, but to be respectful to the Buffett family, it responded to her concern by accelerating the rollout of its next planned ad by several days, although its effort was hampered by the Labor Day weekend.

The commercial now running does not show or mention Buffett.

BUFFETT & BERKSHIRE AROUND THE INTERNET

Some links may require a subscription:

– Best’s News and Research Service: 2026 Best’s Rankings: Berkshire Hathaway Takes DPW Top Spot Among Accident & Health Lines

– Financial Times: The day Warren Buffett saved Salomon Brothers

HIGHLIGHTS FROM CNBC’S BUFFETT ARCHIVE

The effects of 9/11 on Berkshire and the insurance industry (2002)

Warren Buffett shares his thoughts on the 9/11 attacks and explains how Berkshire’s insurance companies have started taking terrorism into account when writing policies.

AUDIENCE MEMBER: I know you lost a lot of money as a result of 9/11. But I would like to know how 9/11 changed your life and your investment strategy?

WARREN BUFFETT: It made everybody, I think, in the country aware, I mean, we’ve gone through world wars and all of that, and essentially felt quite protected within these borders.

And I have been quite worried about — Charlie can attest to — you know, the possibility, particularly of some kind of nuclear device in this country, by — probably more likely by terrorists than by some, at least, declared act of war by another state.

And 9/11 made everybody realize that as humans have not progressed, particularly, in terms of how they behave with each other over the years, they have progressed enormously in their ability to inflict damage on those they hate for one reason or another…

In terms of the business aspects of it, in your question, obviously the area at Berkshire that it effects most significantly, by miles, is insurance.

And prior to 9/11, even though we recognized that there could be huge monetary damages that flowed from the activities of what I would call deranged people, we hadn’t really written the contracts in such a way as to either get paid for taking that risk or to exclude the risk. In other words, we were throwing it in for nothing.

We had excluded risk for war. I mean, we knew that we’d seen what had happened in England in the 40s, and so we had taken account of something that some of us had seen with our own eyes, but we didn’t take account of something that we knew was possible, but we just hadn’t seen. And that’s, you know, that’s the human condition, to some degree.

Since September 11th, everybody in the insurance business recognizes that they had exposures that they weren’t charging for, and they either had to exclude those exposures or they had to charge for them.

We have written — first thing we had to do, of course, is we had lots of policies on the books that left us exposed to this, and most of those policies ran for a year, starting at different points. Those have run off to a great degree, but they’re not entirely run off.

The other thing we did was on new policies. We have sold a fair amount, quite a large amount, of terrorism insurance that excludes what we call NCB, nuclear, chemical, and biological, as well as fire following nuclear.

And, we can take a fair amount of exposure to that sort of terrorism, because it doesn’t — it won’t aggregate. It aggregated at the Twin Towers in a way that — World Trade Center — in a way that just about was as extreme as you could get for non-NCB-type activities.

I mean, that was a huge amount of damage done without nuclear, chemical, or biological.

But we can have tens of billions of dollars with NCB excluded throughout a greater New York area, or something, but we can’t have hundreds of billions of exposure that would be exposed, say, to, nuclear activities, because there an act or two, or three, coordinated, could cause damage that would destroy the insurance industry.

And if we had coverage on that, it would destroy us as well.

BERKSHIRE STOCK WATCH

Four weeks

Twelve months

BRK.A stock price: $766,000.00

BRK.B stock price: $510.37

BRK.B P/E (TTM): 12.83

Berkshire Cash as of June 30: $365.5 billion (Down 8.0% from March 31)

Excluding Rail Cash and Subtracting T-Bills Payable: $359.2 billion (Down 3.8% from March 31)

Berkshire repurchased $4.5 billion of its shares in Q2 2026.

BERKSHIRE’S TOP EQUITY HOLDINGS – Sep. 11, 2026

Berkshire’s top holdings of disclosed publicly traded stocks in the U.S. and Japan, by market value, based on the latest closing prices.

Holdings are as of June 30, 2026, as reported in Berkshire Hathaway’s 13F filing on August 14, 2026, except for:

– Mitsubishi, which is as of April 30, 2026

The full list of holdings and current market values is available from CNBC.com’s Berkshire Hathaway Portfolio Tracker.

QUESTIONS OR COMMENTS

Please send any questions or comments about the newsletter to me at alex.crippen@cnbc.com. (Sorry, but we don’t forward questions or comments to Buffett himself.)

If you aren’t already subscribed to this newsletter, you can sign up here.

Also, Buffett’s annual letters to shareholders are highly recommended reading. There are collected here on Berkshire’s website.

— Alex Crippen, Editor, Warren Buffett Watch

Technologies

Wall Street firm warns AI stock rally may be nearing its end: key reasons

Capital Economics says that while the S&P 500 may keep rising this year, the AI‑driven rally shows multiple bubble indicators and is expected to peak within months, with a projected decline to 6,500 by late 2027.

Various signs of a market bubble indicate that although the S&P 500’s rally can continue this year, its medium‑term outlook appears weak because the market has become overly frothy, according to Capital Economics.

James Reilly, senior market economist at Capital Economics, noted on Thursday that most indicators point to the AI equity rally being close to its end.

Since mid‑2023, Capital has been more optimistic than most about the stock market, viewing AI as a transformative technology.

The firm’s year‑end 2026 S&P 500 forecast has consistently exceeded consensus estimates.

Nevertheless, Capital maintains that the AI‑driven rally is a bubble destined to burst.

To identify a late‑stage bubble, Reilly examines eight metrics: valuations, earnings, index concentration, equity issuance, and foreign interest in U.S. stocks.

Several of these metrics are already at or near levels seen before past market peaks.

While earnings expectations appear aligned with a market top, measures such as volatility and leverage are somewhat less concerning.

Earnings are the most significant warning sign.

S&P 500 earnings growth expectations are hovering at levels only seen at the dot‑com bubble peak, and long‑term EPS forecasts have reached a record high.

Reilly argues that the tech sector’s heavy concentration of this growth means any weakness in tech earnings will heavily drag on the index.

Additional warning signals are also emerging.

Index concentration is approaching dot‑com era extremes, net equity issuance has turned positive, and foreign ownership of U.S. stocks is at a record level.

Reilly warns that another wave of IPOs and share sales could be especially significant, as past issuance booms have historically coincided with market peaks.

He adds that, based on history, the bubble’s end is likely just months away, not years.

Leverage measures are not yet alarming compared with other factors, though the analyst cautions they are moving in a concerning direction.

Volatility indicators resemble those of a mid‑stage bubble, but constituent‑level volatility is not as extreme as at the dot‑com bust’s end.

Reilly expects the S&P 500 to rise from roughly 7,650 now to about 8,250 by the end of 2026, but ultimately projects a decline to 6,500 by the end of 2027.

These projections imply an 8% gain this year and a 21% drop in 2027.

Most signs point to the AI equity rally being close to its conclusion, Capital Economics senior market economist James Reilly stated on Thursday in a note.

The platform has become part of Versant. By using this service, you accept our Terms and acknowledge the revised Privacy Policy, which also covers existing data. For details on your data rights, click the link.

We will also employ essential and service‑related cookies, including those for security and fraud prevention.

– Gather device data and leverage it for personalized ads, ad metrics, audience insights, and service improvements.

– Privacy Management

– Essential Functions

– Record and convey user privacy preferences 515 partners can use this special purpose

– Maintain security, thwart fraud, and resolve issues 649 partners can use this special purpose

– Provide and display ads and content 638 partners can use this special purpose

– Collect and retrieve device data 844 partners can use this purpose

– Tailor ads and content, measure performance, conduct audience research, and develop services 985 partners can use this purpose

– Targeted Ads

– Content Curation

– Employ limited data for ad selection 785 partners can use this purpose