Trumpflation Just Hit 3.4%. The Fed Just Raised Rates. The Stock Market Has Been This Expensive Only Once Before. Is a Crash Inevitable?

Investors are seeing a triple-whammy unfold before their eyes. And in case you aren't familiar with the term, a triple-whammy isn't a good thing.

Three separate negative developments have occurred so far in September. Each has been a key ingredient in significant stock market declines at times in the past. Is a stock market crash now inevitable?

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The triple-whammy

What events make up the market's triple-whammy this month?

First, the U.S. Bureau of Labor Statistics (BLS) released its inflation report on Sept. 11, 2026. The Consumer Price Index (CPI) for August was 3.4%, with higher gasoline costs the primary driver.

When President Donald Trump began his second term, the CPI was 3% and trending downward. The president's tariffs and his initiation of a war with Iran have directly impacted the prices of goods and services, leading to the increase in inflation being dubbed "Trumpflation."

Second, on Sept. 16, the Federal Reserve raised interest rates for the first time in three years in response to persistent inflation. In a press conference following the Federal Open Market Committee's latest meeting, Fed Chair Kevin Warsh stated, "The plain fact is that inflation is too high and has been for too long. This summer's inflation readings do not tell me that underlying trends have meaningfully improved."

Third, the S&P 500 (SNPINDEX:^GSPC) reached its second-highest valuation ever based on one key metric. The S&P 500 Shiller CAPE (cyclically adjusted price-to-earnings) ratio topped 41. This ratio, created by Nobel laureate Robert Shiller, has only been higher once before -- in late 1999 and early 2000.

What history shows

History clearly shows that nagging inflation, rate hikes, and steep market valuations can portend bad news for investors. The most recent bear market, in 2022, resulted from surging inflation, prompting the Fed to aggressively raise interest rates.

But nosebleed valuations have been good predictors of market meltdowns in the past, even in the absence of high inflation and rate increases. For example, the CPI was below 3% when the dot-com bubble burst. However, the S&P 500 Shiller CAPE ratio rose to nearly 44. The infamous stock market crash of 1929 also occurred when market valuations were stretched, and inflation was exceptionally low.

Could this time be different, though? Maybe.

Inflation is higher than the Fed prefers, but it's still well below the post-pandemic levels before the 2022 market sell-off. The Federal Reserve doesn't seem to plan to raise rates aggressively as it did then. Previous modest rate-hike cycles haven't been worrisome for investors. In fact, Charles Schwab (NYSE:SCHW) analyzed historical data and found that the S&P 500 climbed 10.5% on average over the 12 months following the start of a slow-tightening cycle.

The lofty market valuation might not be as worrisome as it has been in the past, either. S&P 500 companies' earnings soared by 50.4% in the second quarter of 2026, according to FactSet (NYSE:FDS).

One asterisk with this sizzling growth, though, is that much of it stems from just two companies. Google parent Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) recorded significant investment gains tied to their stakes in artificial intelligence leader Anthropic, which is planning to go public.

Is a crash inevitable?

Returning to our initial question: Is a stock market crash inevitable? The answer is "no."

It certainly helps matters that the U.S. economy remains strong overall. Fed Chair Warsh stated in his remarks last week that "economic activity is expanding at a solid pace." He noted that domestic consumer spending "has been resilient," with robust productivity growth and capital investment. The unemployment rate hasn't changed much, either.

Sure, the Federal Reserve raised rates and signaled another increase this year. However, a round of rapid and aggressive rate hikes doesn't seem likely at this point.

Still, investors should be cautious in light of the triple-whammy of "Trumpflation," a rate increase, and a historically high market valuation. Any other bad news, such as hints of a weakening economy, could be the proverbial straw that broke the camel's back.

Charles Schwab is an advertising partner of Motley Fool Money. Keith Speights has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and FactSet Research Systems. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.