2024 has been a testament to the resilience of stocks. Despite concerns about lingering inflation, soaring treasury yields, and the Federal Reserve's rate-cutting plans, the S&P 500 has gained a commendable 7.4% this year. However, this situation has created a cognitive dissonance of sorts. Namely, stocks have become expensive, on balance, relative to corporate earnings.

For example, the S&P 500 is currently trading at 24 times trailing earnings, well above its 10-year average multiple of around 20. The key takeaway is that stocks may be poised for a pullback because of the juxtaposition of high valuations against a backdrop of cooling economic activity and stubborn inflation.

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Source Fool.com