JPMorgan Chase (JPM 0.91%) Chief Executive Officer Jamie Dimon is one of the most respected voices on Wall Street.

Dimon leads the nation's largest bank by assets, and he successfully steered JPMorgan Chase through the great financial crisis without needing a bailout. The company and Wall Street analysts often refer to the company's "fortress" balance sheet, a nod to Dimon's canny risk management.

Dimon is also one of the most vocal leaders in banking, and he's never been hesitant to share his thoughts on where the economy is headed or the wisdom of certain financial and economic policies. So, investors were eager to read his annual shareholder letter released on Monday, especially as it came out just after President Donald Trump announced unprecedented global tariffs.

The JPMorgan chief called out a number of risks in the letter, noting that tariffs would "likely increase inflation" and raise the probability of a recession. He also seemed to acknowledge that stagflation was a possibility as inflation could drive interest rates higher and drag down economic growth. Additionally, he bemoaned the large fiscal deficit and national debt, which he said was also inflationary.

However, one comment stuck out, especially for investors aiming to read the tea leaves regarding where the market is headed.

Image source: Getty Images.

Stocks are still expensive

For investors wondering if they should run out to buy stocks to take advantage of last week's two-day market crash, Dimon seems to have a clear answer. Discussing the negative impact of tariffs, he said, "Even with the recent decline in market values, prices remain relatively high." The Wall Street titan added, "These significant and somewhat unprecedented forces cause us to remain very cautious."

Although the Nasdaq Composite was in a bear market as of Monday's close, defined as a decline of 20% from a recent high, and the S&P 500 (^GSPC -1.57%) is hovering near that, Dimon is correct that valuations remain elevated, especially compared to historical averages.

According to multipl.com, the S&P 500 P/E ratio had fallen to 24.7 as of April 8, down from a peak of 29.9 in December 2024. However, at that level, it's still more expensive than it was at almost any time in the 2010s. Over its history dating back to the 1800s, the S&P 500 has had an average P/E ratio of 16.1, though it's been higher in recent decades.

Those valuations are also based on trailing earnings, and future earnings could be lower, especially after the tariffs go into effect.

Dimon's observation underscores another driver behind the recent sell-off as well. Stocks were already near record valuations before the tariff announcement as the chart below, which uses the cyclically adjusted (CAPE) P/E ratio, shows.

S&P 500 Shiller CAPE Ratio data by YCharts

Although that chart doesn't reflect the full extent of the recent pullback, it does illustrate that S&P 500 stocks were previously as expensive as they've been in history since the dot-com bubble.

What it means for investors

Predicting short-term market movements in any environment is difficult, but in the current one, it's virtually impossible as the whipsawing over rumors of a delay in tariff implementation on April 7 showed. It's unclear if the tariffs will be enacted as proposed and if they will be permanent or will change with negotiations.

However, Dimon is right to note the risks in the market, including not just tariffs but also elevated asset prices and interest rates, and pressure from the deficit and debt.

It's not officially a bear market for the S&P 500, but it's worth considering the severity and length of one should it happen. On average, it takes 13 months for stocks to fall from peak to trough in a bear market, and the S&P 500 declines by an average of 33%, though there's a broad range in severity and duration. Recoveries take 27 months on average to get back to the former peak, or about twice as long as the decline.

The unpredictability of the tariffs will add to the market's volatility for the foreseeable future. For investors, the best thing to do is to remember that the U.S. stock market has recovered from far greater dislocations over time, and that buying high-quality stocks at good prices has always paid off.

Despite his risk assessment, you can bet that Dimon is staying invested. Doing so is the only way to win in the long run.