From a statistical perspective, President Donald Trump’s administration has had a notable impact on Wall Street, with encouraging performance during both his first term from January 20, 2017, to January 20, 2021, and the beginning of his second term on January 20, 2025. This period saw significant increases in major stock market indexes, including the Dow Jones Industrial Average, the benchmark S&P 500, and the technology-driven Nasdaq Composite. During his initial term, these indexes rose 57%, 70%, and 142%, respectively. In the early months of his second term, the indexes have continued their upward trajectory, with gains recorded at 14% for the Dow, 23% for the S&P 500, and 34% for the Nasdaq Composite as of May 8, 2026.
Analysis indicates that Trump’s tenure has produced higher annualized returns for these indexes compared to most presidents since the late 1890s. Factors contributing to this outperformance include advances in artificial intelligence and the fiscal impacts of the Tax Cuts and Jobs Act, which lowered the corporate income tax rate from 35% to 21%. This reduction has allowed companies to retain more earnings and has catalyzed record levels of share buybacks among S&P 500 companies in 2025.
However, the current bull market may face significant risks, particularly due to historically high stock valuations. The Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), serves as a key metric for assessing valuations. As of early May 2026, the S&P 500’s Shiller P/E exceeded 42, marking the second-highest level recorded, trailing only behind the dot-com bubble peak. Historically, high CAPE Ratios have indicated troubled waters ahead, as data shows declines of 20% or more often follow instances where the ratio surpasses 30.
In addition to premium valuations, geopolitical tensions also pose a risk. The recent onset of war in Iran, which began on February 28, 2026, has serious implications for global oil supply and markets. Following military actions ordered by the Trump administration, Iran’s response included shutting down the strategic Strait of Hormuz, which is vital for the transit of approximately 20 million barrels of oil daily—representing 20% of global demand. This action has precipitated a sharp spike in oil and gas prices, with U.S. gas prices rising dramatically in just a few months.
Inflation, which had been relatively stable at 2.4% as of February 2026, surged to 3.3% shortly after the conflict began. Economic analysts caution that the inflationary effects of energy price shocks are typically delayed, suggesting that further inflation increases should be anticipated. The combination of elevated inflation rates and geopolitical unrest raises concerns that the Federal Reserve may reconsider its monetary easing strategy, which could lead to broader market volatility.
Historical patterns reveal a concerning relationship between energy supply disruptions and stock market performance. Data compiled since 1940 indicates that while major geopolitical shocks often result in the S&P 500 recovering over the long term, energy supply disruptions tend to correlate with significant market declines. Historical incidents, such as the 1973 oil embargo and Iraq’s invasion of Kuwait in 1990, resulted in stark market downturns, highlighting the vulnerability of the stock market to such shocks.
Given these factors, investors are urged to remain cautious despite the current highs in the S&P 500 and Nasdaq Composite. The potential for a stock market crash looms large in light of both unsustainable valuations and escalating geopolitical tensions.
