The main driving factors for the significant rise in the stock market in the past thirty years are approaching extremes, indicating that the future return on investment will significantly decrease.

This is the opinion of David Rosenberg, the president of the top U.S. economist at Rosenberg Research. In a report on Wednesday, he warned clients to prepare for limited appreciation in the U.S. stock market for a period of time.

"There is little momentum left in the stock market," he said.

Rosenberg is particularly concerned about the latest trends in valuation, taxation, and interest rates. According to him, the bullish trends of these factors have reached extremes, which could bring downward pressure on company profits and put stock prices under pressure.

The following are the three factors of concern for Rosenberg.

Stock valuation

Rosenberg points out that the forward PE ratio of the S&P 500 index is 22.3 times, more than one standard deviation above its historical norm, reaching the highest level since the peak of the technology bubble in the Covid-19 era of 2021.

With such a high valuation, coupled with extreme bullish sentiment that has exceeded the level before the financial crisis, in Rosenberg's view, the upside potential of the valuation has become very small.

"There is no further room for expansion," he said.

Higher stock market valuations largely depend on the continuous growth of corporate earnings, but Rosenberg believes there are reasons to doubt this is unlikely.

Taxation

For decades, the corporate tax rate in the USA has been decreasing, which has increased company profits and helped boost stock prices.

The 'Trump trade' will largely depend on potential legislation to reduce the company tax rate from 21% to 15%, but Rosenberg believes this is unlikely to happen.

Rosenberg said, "The weak majority in the House of Representatives for the Republicans and already low tax rates mean that this upward momentum is much more limited."

Given the current actual corporate tax rate of 17%, Rosenberg believes that even if the Republicans control the White House and Congress, there is almost no room for further reduction.

Interest rate

For a long time, the decline in interest rates has been helping to drive the stock market up, but this trend may also be nearing its end.

Although the Fed is cutting interest rates, rates are already near historic lows, indicating that there is not much room for further rate cuts, especially in the case of President Trump's inflationary agenda.

"Although interest rates are higher than the lows of 2021, they are still at the lower end of the historical range. The current 10-year U.S. Treasury bond yield is 4.3%, less than half the average level of 10.6% in the 1980s," said Rosenstein.

In summary, Rosenstein said that unless operating profit increases significantly by excluding the impact of taxes and interest expenses, the stock market is unlikely to rise significantly in the future.

Rosenstein said, "Coupled with consumers paying more attention to costs, and net profit margin being at the high end of the historical range, creating higher profit margins seems to be a daunting task."

He added, "Currently, all three price return drivers are approaching their limits."