Key Points
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From a purely statistical standpoint, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have outperformed with President Donald Trump in the White House.
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Despite lower interest rates and declining yields, cash is continuing to flow into ultra-low-risk money market funds.
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Investor skepticism is mounting amid Iran war uncertainty and a historically pricey stock market.
From a statistical standpoint, Wall Street has thrived under President Donald Trump. When Trump’s first, non-consecutive term concluded on Jan. 20, 2021, the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and tech-powered Nasdaq Composite (NASDAQINDEX: ^IXIC) had gained 57%, 70%, and 142%, respectively. The annualized returns of these indexes were higher under Trump than under most presidents.
Until seven weeks ago, Trump’s second term was shaping up similar to his first, with the Dow, S&P 500, and Nasdaq enjoying double-digit gains. But it’s amazing how quickly a narrative can shift on Wall Street.
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Although several catalysts have helped fuel the Trump bull market, one gigantic figure, totaling nearly 8.2 trillion, looms large and points to the stock market’s good times coming to an unceremonious end.
Donald Trump listening while others speak during a meeting in the Oval Office.
President Trump attending an Oval Office meeting. Image source: Official White House Photo by Daniel Torok.
Artificial intelligence and favorable tax policies have powered the stock market to new heights
But before dissecting how things can go wrong for Wall Street, it’s imperative to lay the groundwork of how the Trump bull market has blossomed.
Some of the catalysts that have fueled record highs in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have nothing to do with President Trump or actions taken by his administration. For example, the evolution of artificial intelligence (AI) and the advent of quantum computing have played important roles in lifting the broader market.
Empowering software and systems with the tools to make autonomous, split-second decisions is a game changer for most sectors and industries around the globe. Analysts at PwC see the direct and ancillary impacts of the AI revolution creating more than $15 trillion in global economic value by 2030.
However, some of Wall Street’s catalysts are directly tied to Donald Trump’s policies. For instance, the signing of his flagship tax and spending law, the Tax Cuts and Jobs Act (TCJA), during his first term led to a major shift in corporate strategy.
With the TCJA lowering the peak marginal corporate income tax rate from 35% to 21%, businesses were able to retain more of their earnings. This led to a marked increase in share repurchase activity by S&P 500 companies. Share buybacks can increase earnings per share and make a public company more fundamentally attractive to value-seeking investors.
Though Trump’s fingerprints are on some aspects of this bull market rally, one looming figure suggests it’s destined to fail.
8.2 trillion reasons the Trump bull market is running on fumes
There is never any shortage of reasons that stocks could tumble — but more often than not, these worries fail to materialize into tangible declines. But every so often, a data point or correlated event does accurately foreshadow the future.
In mid-March, the Board of Governors of the Federal Reserve reported that total financial assets held in money market funds had climbed to an all-time high of $8.19 trillion. This is up from the previous record high of $7.77 trillion, as of Sept. 30.
Money market funds are a type of mutual fund that invests in super-safe, high-quality assets, including short-term Treasury bills, municipal bonds, and certificates of deposit (CDs). Typically, the total assets held in money market funds would go in one ear of investors and out the other. But this isn’t one of those instances.
Investors put their capital to work in money market funds to generate income and keep their principal stable during periods of uncertainty. When the Federal Reserve was aggressively increasing interest rates to combat a parabolic move in inflation from March 2022 through July 2023, investors were incentivized to pile into money market funds and take advantage of higher yields.
However, when interest rates decline, we’d expect to see assets flow out of money market funds as investors seek higher returns. But this isn’t what we’re observing right now. Even though the central bank kicked off a rate-easing cycle in September 2024 that has reduced yields for ultra-safe assets, cash continues to flow into money market funds at an alarming rate.
Investors have spoken, and they’ve offered nearly 8.2 trillion reasons to be skeptical of the Trump bull market.
A skeptical businessperson reading a financial newspaper held in their hands.
Image source: Getty Images.
Investors have several reasons to be skeptical
Having close to $8.2 trillion piled into money market funds is a glaring red flag for the Dow, S&P 500, and Nasdaq Composite. In particular, two catalysts, working in tandem, are threatening to upend Trump’s bull market.
The first headwind is front and center: the Iran war. On Feb. 28, at Trump’s command, U.S. forces, along with Israel, commenced military operations against Iran. Not long after fighting began, Iran closed the Strait of Hormuz to most oil exports. Approximately 20% of the world’s liquid petroleum travels through the Strait of Hormuz daily. In other words, Trump’s actions have set in motion a domino effect that’s led to the largest energy disruption in modern history.
Oil price shocks have historically been terrible news for Wall Street — and it’s about far more than what consumers are paying at the pump. Persistently high crude oil prices can dramatically increase U.S. inflation and force the Federal Reserve’s hand. In just a few months, we’ve shifted from the expectation of several rate cuts in 2026 to the possibility of the Federal Open Market Committee raising interest rates before the year ends.
The other headwind that can’t be swept under the rug is the historical priciness of equities.
The stock market entered 2026 at its second-priciest valuation over the last 155 years, according to the S&P 500’s Shiller Price-to-Earnings Ratio. The only time the stock market was pricier was in the lead-up to the bursting of the dot-com bubble. As a reminder, the S&P 500 and Nasdaq Composite shed 49% and 78% of their respective value after the dot-com bubble burst.
One of the reasons premium stock valuations have (thus far) been supported is the expectation of additional interest rate cuts this year. But with the Iran war likely taking interest rate cuts off the table, Wall Street’s historically expensive stock market is exposed and highly vulnerable.
Persistent capital inflows to money market funds, even as interest rates have fallen and yields have declined, portend a bull market that appears destined to fail.
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