The Trump Bull Market Will End Soon — And The Federal Reserve Will Be Guilty Of Surprise

From a purely data-driven standpoint, the stock market has been virtually unstoppable with Donald Trump in the White House. While there have been periods of historical volatility, such as the five-week COVID-19 crash in February-March 2020, the ageless Dow Jones Industrial Average (DJINDICES: ^DJI)landmark S&P 500 (SNPINDEX: ^GSPC)and technology based Nasdaq Composite (NASDAQINDEX: ^IXIC) rose 57 percent, 70 percent, and 142 percent, respectively, during Trump’s first term.

The stock market’s outperformance has continued since President Trump’s second nonconsecutive term began on January 20, 2025, with the Dow, S&P 500 and Nasdaq up 14%, 15% and 16%, respectively, since the closing bell on February 18.

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This Trump bull market has been fueled by a variety of factors, such as the rise of artificial intelligence and the advent of quantum computing, as well as policies and proposals directly related to Trump.

For example, the Tax Cuts and Jobs Act (Trump’s flagship tax and spending law of his first term) permanently reduced the top marginal corporate tax rate from 35% to 21%, the lowest level since 1939. As businesses keep more of their earnings, this has led to record share buybacks by S&P companies, estimated at $501 trillion for 501 trillion dollars. buybacks can increase earnings per share for public companies with flat or growing net income.

While the Trump bull market may seem infallible, several headwinds threaten to pull the rug out from under it. While some of these catalysts are well-known, such as uncertainty about tariffs and historically high stock valuations, the eventual destruction of the Trump bull market may have a surprise to blame: the Federal Reserve.

Normally, the Federal Reserve is the financial base of Wall Street. It is America’s foremost financial institution charged with maximizing jobs and stabilizing prices. It achieves these goals by adjusting the target federal funds rate — the overnight lending rate between financial institutions — and/or conducting open market operations, such as buying or selling U.S. Treasury bonds. It’s a simple task, guided by vast amounts of economic data.

While “calming” and “boring” are two descriptors that can be commonly used to describe the Fed’s approach, we have watched this financial pillar of the stock market turn into debt before our eyes over the past seven months.

Nothing is more important to Wall Street than the credibility of the Federal Reserve. Because the Federal Open Market Committee (FOMC) — the 12-person body, including Fed Chairman Jerome Powell, responsible for setting the nation’s monetary policy — uses retrospective data to make its decisions, it is usually behind the curve when making monetary policy adjustments. Investors have shown a willingness to accept this delay and even mistakes… with one caveat: that FOMC members have a unified view.

As of July 2025, that shared vision has been thrown out the window. All five FOMC meetings since the middle of last year have featured at least one dissent. Moreover, the October and December meetings had dissents in opposite directions. Even though the FOMC voted to cut interest rates by 25 basis points in both meetings, at least one member favored no cut, while another supported a 50 basis point cut. There have been only three FOMC meetings since 1990 with opposing dissents, and two have occurred since late October.

If there is a lack of clarity and cohesion at the Fed, Wall Street and investors pay the price.

Unfortunately, a historic level of division at the FOMC is only part of the problem. Jerome Powell’s term as Fed chairman ends on May 15, and President Trump’s nominee to replace him, Kevin Warsh, could stir the pot even more.

Warsh previously served on the FOMC during the financial crisis and was a harsh critic of the Fed’s $6.6 trillion balance sheet, composed mostly of U.S. Treasuries and mortgage-backed securities (MBS). Warsh would prefer the central bank to take on a passive watchdog role and disclose its balance sheet.

The potential problem is that the sale of Treasuries and MBS would be expected to raise interest rates and make borrowing/mortgage more expensive. Higher borrowing costs and a weaker housing market would be problematic for the Trump bull market.

While the above paints a dire picture for the Trump bull market, the outlook is a powerful tool for Wall Street investors.

At one point, the current bull market will Ending. Stock market corrections, bear markets and even crashes are normal and inevitable aspects of the investment cycle. Because lower moves in the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite are often fueled, in part, by investor emotions, there is little the Fed, the federal government, or Wall Street can do to prevent these events from occurring.

But what investors can do is step back and examine the nonlinearity of stock market cycles.

On February 10th, analysts at Bespoke Investment Group published a comprehensive data set on X (formerly Twitter) comparing the length of every S&P 500 bear and bear market since the start of the Great Depression (September 1929). What this analysis showed was the night and day difference between the often fundamentally driven bear markets and the emotionally driven bear markets.

There have been 27 declines of at least 20% in the S&P 500 over the past 96 years. Only one-third of these declines reached the one-year mark, while the average bear market lasted only 286 calendar days (about 9.5 months).

By comparison, 10 of the 27 S&P 500 bull markets have persisted for more than 1,200 calendar days. Moreover, the average bull market remained for 1,011 calendar days, or about 3.5 times longer than the typical bear market.

What this data set conclusively shows is that corrections and bear markets are generally short-lived and represent phenomenal buying opportunities for bullish, long-term investors. While the Fed appears to be a powder keg of trouble for the stock market right now, the long-term outlook for stocks remains as strong as ever.

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Prediction: The Trump Bull Market Will End Soon — and the Federal Reserve Will Be Guilty of Surprise was originally published by The Motley Fool