Just like peanut butter and jelly, outsize stock market returns have gone hand in hand with Donald Trump’s presidency. Though there have been plenty of periods of heightened volatility, the annualized returns of the Dow Jones Industrial Average (^DJI -0.51%), S&P 500 (^GSPC -0.38%), and Nasdaq Composite (^IXIC -0.29%) have been higher under Trump than under most other presidents since the late 1890s.
While some of Wall Street’s prime catalysts have developed organically, such as the evolution of artificial intelligence (AI), Wall Street’s bull market rally has also been influenced by the president’s policies. For instance, the Tax Cuts and Jobs Act (signed into law in December 2017) permanently lowered the peak marginal corporate income tax rate to 21%, leading to a surge in buyback activity from S&P 500 companies.
The Trump bull market may be running on borrowed time. Image source: Official White House Photo by Daniel Torok.
But with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite soaring to several new highs in 2026, it’s fair to question whether the Trump bull market is nearing an elevator-down event.
While past events can’t guarantee what’s to come on Wall Street, history has a knack for foreshadowing the future. According to two (thus far) surefire historical precedents, the likelihood of a stock market crash under President Donald Trump is rapidly climbing.
Stock valuations are a glaring red flag
At any given time, headwinds threaten to pull the rug out from beneath investors. Arguably, no historical headwind is more pronounced at the moment than premium stock valuations.
The tricky thing about valuing stocks and/or the broader market is that there’s no perfect blueprint. There’s always some degree of subjectivity or emotion involved in the valuation process, which is what makes accurately forecasting short-term moves in the Dow, S&P 500, and Nasdaq Composite so challenging.
Thankfully, the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), resolves this issue. The Shiller P/E is based on average inflation-adjusted earnings over the previous decade, and it’s been backtested nearly 156 years. In other words, it can provide investors with the closest thing they’ll get to an apples-to-apples valuation comparison of Wall Street’s benchmark stock index, the S&P 500.
Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt
— Barchart (@Barchart) July 11, 2026
Since January 1871, the S&P 500’s CAPE Ratio has averaged a modest 17.4. As of the closing bell on Aug. 28, it tipped the scales at 42.17, just below its current bull market high of 42.84 and within eyeshot of its all-time high of 44.19, set in December 1999.
History shows that bad things happen when the Shiller P/E Ratio surpasses 30. There have been six instances over nearly 156 years in which the Shiller P/E has exceeded 30, including the present, and the previous five resulted in bear market declines for the Dow, S&P 500, and/or Nasdaq Composite.
Although the CAPE Ratio can’t identify when Wall Street’s major stock indexes will roll over, its track record of foreshadowing 20% or greater declines is unmatched.
The risk-taking bubble appears ready to burst
However, unsustainable premium stock valuations aren’t the only historical red flag for Wall Street. Perhaps the greatest measure of stock market risk-taking — outstanding margin debt — suggests trouble lies ahead.
Margin represents the money an investor borrows from their broker, with interest, to purchase or wager against (short-sell) securities. When it’s used to buy securities, margin acts as a form of leverage. In other words, it can magnify gains if a security moves in the desired direction, but also amplify losses if it heads in the opposite direction.
Total Margin Debt hits $1.5 Trillion, a new all-time high 🤯 👀 pic.twitter.com/1IXqZGgrqs
— Barchart (@Barchart) July 20, 2026
Although outstanding margin debt is expected to rise in lockstep with the overall value of the stock market, trouble arises when margin usage grows in a parabolic fashion over a short time frame. For example, outstanding margin debt surged 77% to an all-time high of $1.502 trillion over 14 months (April 2025 – June 2026). It would appear that the AI revolution is encouraging risk-taking, which has thus far been rewarded.
But parabolic increases in margin debt over the last three decades have consistently signaled the end of long-winded bull markets. For instance, margin debt soared 80% over 12 months (March 1999 – March 2000), peaking as the dot-com bubble burst. The S&P 500 and Nasdaq lost 49% and 78% of their respective values after the dot-com peak. Meanwhile, margin debt jumped 66% over 13 months (June 2006 – July 2007), peaking mere months before the financial crisis wiped away 57% of the S&P 500’s value.
In July 2026, margin debt retraced from its all-time high of more than $1.5 trillion. If this added wind in Wall Street’s sails scales back, it may mark the end of this historic bull market.
Image source: Getty Images.
Historical precedent is a pendulum that disproportionately favors optimists
From a purely historical standpoint, things don’t look great for the bull market under President Trump. Premium valuations and parabolic moves in margin debt are historical precursors to bear markets, which occasionally entail stock market crashes.
But the great thing about historical precedent is that it works both ways.
Think of history as a pendulum that swings in both directions and provides an array of upside and downside catalysts for the stock market. The thing is, this pendulum doesn’t swing proportionately from side to side. While historical precedent does point to the growing likelihood of a significant downside event for the stock market, this proverbial pendulum spends a disproportionate amount of time favoring optimists.
In late May, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) comparing the calendar-day length of every S&P 500 bull and bear market since the start of the Great Depression (September 1929).
The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft
— Bespoke (@bespokeinvest) May 30, 2026
Bespoke calculated the average length of S&P 500 bear markets over the last 97 years as 286 calendar days, or approximately 9.5 months. Researchers also showed that no S&P 500 bear market has lasted longer than 630 calendar days.
In comparison, the typical bull market has endured about 3.6 times as long (1,023 calendar days), with more than half (14 of 27) of S&P 500 bull markets lasting longer than the lengthiest bear market.
While historical predictions of short-term doom and gloom and stock market crashes can come true, history shows that long-term optimism wins out every time.