Recent economic data suggests that tariffs and trade tensions are negatively impacting U.S. economic growth, which poses risks for corporate sales. While slower growth alone hasn't historically derailed stock prices in the medium term, today’s market faces additional pressures that could temper future returns.

The key drivers behind stock prices over the long term are profit margins and the valuation multiples investors assign to earnings. Profit margins have been elevated recently due to globalization benefits such as offshoring and low inflation, but these advantages are waning amid disrupted global trade and rising interest rates. Should margins revert to pre-2015 levels, corporate earnings could suffer a substantial decline, directly impacting stock valuations.

Meanwhile, higher bond yields and less aggressive foreign investment are reducing the premium investors are willing to pay for equities. Although the U.S. market’s tech focus might justify a somewhat higher price-to-earnings ratio, forecasts imply a sharp drop in annualized returns over the next decade compared to the strong gains seen in recent years. Without a significant productivity breakthrough, the combination of slower growth, fading globalization benefits, and tighter financial conditions points toward more modest equity market performance ahead.

This outlook highlights the importance for investors to temper expectations and carefully consider how ongoing economic shifts may influence stock valuations and portfolio returns.