The Trump Bull Market Will Soon End — and the Federal Reserve Will Be the Surprise Culprit
From a purely data-driven perspective, the stock market was nearly unstoppable with Donald Trump in the White House. While there have been historical periods of volatility, such as the five-week COVID-19 crash in February-March 2020, timeless Dow Jones Industrial Average(INDIKS: ^DJI)quality test S&P 500(SNPINDEX: ^GSPC)and technology focused Nasdaq Composite(NASDAQINDEX: ^IXIC) They increased by 57%, 70% and 142%, respectively, during Trump’s first term.
The stock market’s outperformance has continued since January 20, 2025, when President Trump began his second non-consecutive term; As of the closing bell on February 18, 2026, the Dow, S&P 500, and Nasdaq were up 14%, 15%, and 16%, respectively.
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This Trump bull market fueled by several factorssuch as the rise of artificial intelligence and the emergence of quantum computing, as well as policies and proposals directly linked to Trump.
President Trump makes statements. Image source: Official White House Photo: Andrea Hanks, courtesy of the National Archives.
For example, the Tax Cuts and Jobs Act (the most important tax and spending bill of Trump’s first term) permanently reduced the top marginal corporate income tax rate from 35% to 21%, the lowest level since 1939. Businesses retaining more of their revenue has led to record share buybacks from S&P 500 companies, with more than $1 trillion predicted for 2025. Share buybacks can increase earnings per share of stable or growing public companies. net income.
While the Trump bull market seems infallible, some headwinds are threatening to pull the rug out from under him. While some of these catalysts, such as uncertainty around tariffs and historically high stock valuations, are well-known, the eventual end of the Trump bull market could be a surprise culprit: Federal Reserve.
Normally, the Federal Reserve is the financial foundation of Wall Street. It is America’s leading financial institution charged with maximizing employment and stabilizing prices. It achieves these goals by adjusting the federal funds target rate (the overnight lending rate between financial institutions) and/or by engaging in open market operations such as buying and selling U.S. Treasury securities. This is a simple task driven by vast amounts of economic data.
While “calming” and “boring” are two descriptions that can often be used to describe the Fed’s approach, over the last seven months we have witnessed the financial backbone of the stock market turning into a debt.
Nothing is more important to Wall Street than the reliability of the Federal Reserve. The Federal Open Market Committee (FOMC), a 12-member body including Fed Chairman Jerome Powell that is responsible for setting the nation’s monetary policy, often remains behind the curve when making monetary policy adjustments because it uses backward-looking data to form its decisions. Investors have shown they are willing to accept this delay and even mistakes… with one caveat: FOMC members have a shared vision.
Since July 2025, this shared vision has been thrown out the window. All five FOMC meetings since the middle of last year included at least one dissenting opinion. Moreover, there were disagreements in opposite directions at the October and December meetings. Although the FOMC voted to cut interest rates by 25 basis points in both meetings, at least one member supported no rate cut, while another pressed for a 50 basis point cut. There have been only three FOMC meetings with opposing views since 1990, and two since late October.
If there is a lack of clarity and alignment at the Fed, Wall Street and investors pay the price.
Unfortunately, the historic level of division in the FOMC is only part of the problem. Jerome Powell’s term as Fed chairman ends May 15, and President Trump’s nominee to replace him, Kevin Warsh, could further complicate the situation.
Warsh previously served on the FOMC during the financial crisis and was a harsh critic of the Fed’s $6.6 trillion balance sheet, which consists primarily of U.S. Treasuries and mortgage-backed securities (MBS). Warsh would prefer the central bank take a passive oversight role and reduce its balance sheet.
The potential problem is that the sale of Treasuries and MBSs is expected to increase interest rates and make borrowing/mortgages more costly. Higher loan costs and a weaker housing market could spell trouble for the Trump bull market.
Image source: Getty Images.
While the above paints a dire picture for the Trump bull market, perspective is a powerful tool for investors on Wall Street.
The current bull market at some point will last. Stock market corrections, bear markets and even crashes are normal and inevitable aspects of the investment cycle. Because declines in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite are often fueled in part by investors’ emotions, there’s nothing the Fed, the federal government, or Wall Street can do to stop these events from happening.
But what investors can do is take a step back and examine the non-linearity of stock market cycles.
On February 10, analysts at Bespoke Investment Group published a comprehensive data set on X (formerly Twitter) comparing the length of each S&P 500 bull and bear market since the beginning of the Great Depression (September 1929). What this analysis showed was a night and day difference between bull markets, which are often fundamentally driven, and bear markets, which are typically driven by emotion.
There have been 27 declines of at least 20% in the S&P 500 in the last 96 years. While only one-third of these declines reached the one-year mark, the average bear market lasted only 286 calendar days (about 9.5 months).
By comparison, 10 of the 27 bull markets in the S&P 500 have persisted for more than 1,200 calendar days. Moreover, the average bull market lasted for 1,011 calendar days, roughly 3.5 times longer than the typical bear market.
What this data set conclusively shows is that corrections and bear markets are often short-lived and represent extraordinary buying opportunities for optimistic, long-term investors. While the Fed appears to be a source of trouble for the stock market right now, the long-term outlook for stocks remains as strong as ever.
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Sean Williams It has no position in any of the stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a feature disclosure policy.
