The S&P 500 has experienced a notable return of just 54% since the current bull market began on October 12, 2022, significantly lower than its historical average return of 184% during bull markets since 1957. Analysts express skepticism that this trend will change, with predictions suggesting the bull market could end by 2026. This anticipated downturn may be driven by several interrelated factors: political uncertainty due to midterm elections, tariffs imposed during the Trump administration, and elevated market valuations.
Historically, midterm election years tend to instill anxiety in investors. The incumbent party has consistently lost seats in Congress during these elections, with an average loss of 24 House seats and three Senate seats since 1958. This electoral pattern creates an atmosphere of uncertainty, prompting many investors to withdraw their capital from the stock market until the election outcomes are clarified. Notably, the S&P 500 has exhibited a median decline of 19% at some point during midterm election years, indicating a significant risk of a similar dip in 2026.
Moreover, ongoing tariffs and rising oil prices also pose threats to economic growth. Research suggests that U.S. consumers and businesses are bearing the brunt of tariffs, having paid 94% of these costs in 2025, contrary to claims that foreign exporters are shouldering the burden. This tariff-induced economic strain has correlated with slower growth, as evidenced by a mere 2.2% increase in GDP in 2025—marking the slowest growth since the pandemic’s onset in 2020.
The recent geopolitical instability in the Middle East has further exacerbated economic conditions. Oil prices have surged, with Brent crude hitting early highs above $110 per barrel, reflecting a more than 30% increase compared to the average price over the past year. This uptick in oil costs, coupled with tariffs, threatens to diminish household consumption and may lead to slower-than-anticipated corporate earnings growth. Such a scenario could trigger a decline in the stock market.
In addition to these factors, the current valuation of the S&P 500 is concerning, with the cyclically adjusted price-to-earnings (CAPE) ratio hitting 39.2 in February—its highest level since the dot-com bubble in the late 1990s. Elevated valuations can create a precarious situation; while they do not necessarily predict an immediate downturn, they leave the market susceptible to corrections when combined with adverse events.
Given these dynamics, there is a strong case being made for potential declines in the stock market, with an expectation that the S&P 500 could drop at least 20% from its peak by 2026, marking the onset of a bear market. In light of these unfolding events, investors are encouraged to remain cautious in navigating the current landscape.
