Statistically speaking, Wall Street has been thrilled to have President Donald Trump in the White House. Although some of the stock market’s wildest oscillations have occurred during Trump’s tenure, he’s also overseen outsize annualized returns.
During Trump’s first, non-consecutive term (Jan. 20, 2017 – Jan. 20, 2021), the ageless Dow Jones Industrial Average (^DJI 0.09%), benchmark S&P 500 (^GSPC 0.05%), and growth-dominated Nasdaq Composite (^IXIC 0.24%) surged 57%, 70%, and 142%, respectively. Since the start of his second term, it’s been an encore performance, with the Dow, S&P 500, and Nasdaq Composite gaining 19%, 23%, and 30%, respectively (as of June 23).
President Trump delivering remarks. Image source: Official White House Photo by Joyce N. Boghosian.
These outsize returns have been driven by:
- The evolution of artificial intelligence (AI) and the AI infrastructure build-out.
- The advent and early innings utility of quantum computers.
- Record S&P 500 share buybacks, thanks to Trump’s Tax Cuts and Jobs Act, which permanently lowered the peak marginal corporate income tax rate to 21%.
- Initial public offering (IPO)-mania, driven by Space Exploration Technologies (SpaceX).
But when things seem too good to be true on Wall Street, history shows they often are.
While historical precedent can’t guarantee what’s to come, it does tend to rhyme. More importantly, history removes emotions and subjectivity from the equation when offering its outlook. The past provides a no-nonsense prediction of the future for Wall Street — and it points to a heightened likelihood of a stock market crash under Trump.
Valuation concerns are front and center
Though a laundry list of concerns threatens to upend the bull market that’s thrived under President Trump, arguably no issue is more front and center than stock market valuations.
Value is a touchy subject because it’s inherently subjective. What one investor views as pricey may be a bargain to another. The emotions and subjectivity that come into play when valuing a public company or the broader market are the reason it’s so challenging to accurately predict short-term moves for Wall Street’s major indexes.
However, the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio has an immaculate track record of cutting through this subjectivity. You’ll also find the Shiller P/E referred to as the Cyclically Adjusted P/E Ratio (CAPE Ratio).
Shiller PE Ratio is now just 3.5% away from passing the Dot Com Bubble as the most expensive stock market valuation in history 🚨🚨🚨 pic.twitter.com/1ceOa3yhfs
— Barchart (@Barchart) June 1, 2026
The Shiller P/E Ratio is based on average inflation-adjusted earnings from the previous 10 years. Accounting for a decade of earnings history ensures that the Shiller P/E will retain its usefulness during recessions (the same can’t be said for the traditional P/E ratio).
When back-tested to January 1871, the CAPE Ratio has averaged approximately 17.4. But when Wall Street’s major indexes hit their all-time highs roughly four weeks ago, the CAPE Ratio touched its second-priciest valuation over 155 years of 42.84. It also came within a stone’s throw of its priciest valuation in history, a CAPE Ratio of 44.19 in December 1999.
While the Shiller P/E has its limitations (e.g., it can’t pinpoint when the music will stop on Wall Street), it also possesses an impeccable track record of forecasting sizable stock market downturns.
There have only been six instances in which the S&P 500’s Shiller P/E has exceeded 30 during a continuous bull market since the start of 1871. Excluding the present, the previous five occurrences were all followed by declines of 20% (or greater) in the Dow, S&P 500, and/or Nasdaq Composite.
In other words, it’s not a matter of if but when the weight of this AI-driven rally proves too great for Wall Street.
Image source: Getty Images.
Margin debt tells a terrifying tale
However, stock valuations aren’t the only concern. Outstanding margin debt provides another reason for investors to expect a serious correction, bear market, or stock market crash in the not-too-distant future.
Margin is money that an investor borrows from their broker to purchase or short-sell a security. When it’s used to purchase a stock, it can leverage an investor’s position. In short, margin can amplify gains if the underlying security moves in the intended direction, but it can also magnify losses if it moves in the opposite direction.
On top of escalating risk and reward, investors pay interest on the amount they borrow from their broker. The borrow rate is subject to change at the broker’s discretion.
While it’s normal for outstanding margin debt to rise over multiple decades, parabolic moves higher in margin debt often signal periods of investor euphoria and an impending crash event on Wall Street. Since April 2025, FINRA data show that outstanding margin balances have catapulted from $850.6 billion to a record $1.416 trillion in May 2026.
BREAKING: US margin debt jumped by +$112 billion in May, to a record $1.42 trillion.
This marks the 2nd consecutive monthly increase, totaling +$195 billion.
Margin debt has surged +$495 billion, or +54%, over the last 12 months.
Adjusted for inflation, this metric rose +7.9%… pic.twitter.com/DrambJNRpa
— The Kobeissi Letter (@KobeissiLetter) June 18, 2026
A parabolic increase in margin-driven risk-taking has been observed only four times over the last 30 years:
- Leading up to the bursting of the dot-com bubble in March 2000.
- In the lead-up to the financial crisis in 2008-2009.
- In the year before the 2022 bear market took shape.
- Over the previous 13 months.
During the dot-com bubble, the S&P 500 and Nasdaq lost 49% and 78% of their respective value. Meanwhile, the financial crisis wiped away 57% of the S&P 500’s value. A rapid uptick in outstanding margin debt is about as terrifying a signal for Wall Street as it gets.
While the Shiller P/E and outstanding margin debt data can’t guarantee that a stock market crash will occur under President Trump, the probability of an elevator-down move is exponentially increasing.
