How Likely Is It That the Stock Market Crashes Under President Donald Trump in the Second Half of 2026? Here’s What History Tells Us.

Key Points

• Outsize returns for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have been the norm during President Trump’s two non-consecutive terms.

• The stock market has nearly never been pricier — and that’s terrible news for Wall Street.

• Additionally, investors’ willingness to take risks is skyrocketing, which has boded poorly for the stock market over the last three decades.

• 10 stocks we like better than S&P 500 Index ›

Statistically speaking, President Donald Trump and the stock market pair like peanut butter and jelly. Although the ride has been wild at times, outsize stock market returns have been a theme for Trump’s tenure in the White House.

During Trump’s first term, the timeless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and technology-inspired Nasdaq Composite (NASDAQINDEX: ^IXIC) gained 57%, 70%, and 142%, respectively. This outperformance carried over to his second, non-consecutive term, with the Dow, S&P 500, and Nasdaq rallying 24%, 30%, and 36% since his inauguration on Jan. 20, 2025.

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Catalysts have been plentiful, with the evolution of artificial intelligence (AI), record S&P 500 share buybacks, and better-than-expected corporate earnings fueling excitement on Wall Street. However, bull markets aren’t indefinite.

President Trump delivering remarks. Image source: Official White House Photo.

While history can’t guarantee what’s to come for the stock market, past events have an uncanny ability to foreshadow the future more often than not. Several historical headwinds have been mounting on Wall Street, all of which point to a heightened likelihood of a stock market crash under President Trump.

This is the second-priciest stock market in history — and that’s terrible news

Arguably, the biggest red flag for the Trump bull market is stock valuations.

“Value” is one of the trickiest subjects on Wall Street. Since there isn’t a one-size-fits-all way to evaluate and value businesses or the broader market, subjectivity and emotions have made it practically impossible to accurately forecast directional moves in the Dow, S&P 500, and Nasdaq Composite.

However, the time-tested S&P 500 Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), has a knack for cutting through this subjectivity. The Shiller P/E is based on average inflation-adjusted earnings over the trailing 10 years and has been backtested nearly 156 years.

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 Shiller P/E Ratio has averaged 17.4. On Friday, Aug. 14, it closed out the trading session at 42.56, just a hair below its current bull market high of 42.84 and a stone’s throw from its all-time high of 44.19, set during the dot-com hype in December 1999.

The CAPE Ratio has exceeded 30 on just six occasions, including the present, since January 1871. Following each of the previous five instances, the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite lost 20% to 89% of their respective value. In other words, more than a century and a half of valuation history is telling us that premium multiples aren’t well-tolerated on Wall Street.

Although the CAPE Ratio can’t pinpoint when the music will stop or which catalyst will be responsible for pushing the stock market over the proverbial cliff, it has an immaculate track record of foreshadowing significant downside for equities.

Margin debt is soaring, and outsize risk-taking has always been a recipe for disaster on Wall Street

But outsize valuations aren’t the only reason a stock market crash could take shape under Donald Trump. What’s been happening with outstanding margin debt over the last 15 months should also raise red flags.

Margin represents the money an investor borrows, with interest, from their broker to short-sell (wager against) or purchase securities. When used to buy securities, margin is a form of leverage. It’s also a crude measure of investors’ willingness to take risks on Wall Street.

Every month, FINRA reports the balance of outstanding margin debt. While this figure is expected to steadily climb over the long run in lockstep with the overall value of the broader market, a parabolic move higher in outstanding margin debt (i.e., risk-taking) has always been a historical red flag for Wall Street.

Total Margin Debt hits $1.5 Trillion, a new all-time high 🤯 👀 pic.twitter.com/1IXqZGgrqs

— Barchart (@Barchart) July 20, 2026

Even though margin debt declined in July from its all-time high of $1.502 trillion in June, it has soared by roughly 67% over 15 months (April 2025 – July 2026).

Over the last three decades, we’ve observed three instances in which margin debt jumped by at least 65% over a 12- to 19-month timeline, and they each preceded disaster for the stock market. This includes an 80% increase in margin debt immediately before the dot-com bubble popped, a 66% jump months before the financial crisis began, and a 95% boost in outstanding margin debt mere months before the start of the 2022 bear market.

Parabolic rises in outstanding margin debt are a major red flag for the Trump bull market.

Image source: Getty Images.

Next-big-thing technologies have a checkered past

The stock market’s biggest catalyst, the evolution of AI, can also be its biggest downfall, based on historical precedent.

Virtually no one will deny the long-term potential of AI solutions or their ability to make America’s most influential businesses more efficient. This is a multitrillion-dollar global opportunity that companies are rightly eager to capitalize on.

But next-big-thing technologies have a checkered past that’s historically resulted in some rough patches for the stock market.

For more than three decades, every game-changing technology, including the internet, has experienced a bubble-bursting event early in its growth phase. These bubbles arise because investors consistently overestimate the pace of adoption and/or optimization with next-big-thing technologies.

Stock market bubbles throughout history…

AI stocks now ~40% of the market. pic.twitter.com/RxSAh09k6F

— Geiger Capital (@Geiger_Capital) May 8, 2026

Similar to the internet, adoption hasn’t been a concern. Businesses are spending a small fortune to build-out their AI-accelerated data centers, much in the same way that companies welcomed internet-driven solutions in the mid-to-late 1990s.

The heart of the problem is the pace of optimization. It took until well after the dot-com bubble burst for internet-driven businesses to optimize these solutions. In other words, every major technological advance has required time to mature. Despite the otherworldly demand for AI infrastructure, we’re not particularly close to companies optimizing these solutions to boost sales and profits. This suggests that yet another bubble is brewing on Wall Street — and the Trump bull market would pay the price.

Although none of these three historical catalysts can pinpoint when these downturns will begin, or even guarantee that the move lower will be elevator-like, they each point to an increasing likelihood of a stock market crash under President Donald Trump in the second half of 2026.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.