The stock market delivering outsize returns under President Donald Trump is nothing new. During his first, non-consecutive term, the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and growth stock-propelled Nasdaq Composite (NASDAQINDEX: ^IXIC) gained 57%, 70%, and 142%, respectively.
Since Trump’s second term began, the Dow, S&P 500, and Nasdaq Composite have surged another 16%, 25%, and 34%, respectively. On an annualized basis, Dow/S&P 500 returns under Trump have outpaced most other presidents since the late 1890s.
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There’s little question that the rise of artificial intelligence (AI) and Trump’s Tax Cuts and Jobs Act, which permanently lowered the peak marginal corporate income tax rate, are helping to fuel this outperformance. The all-important question is: How much longer can it continue, given the stock market’s historical valuation premium?
Based on the trajectory of inflation, spurred by two decisions from the president (i.e., Trumpflation), Wall Street’s bull market rally appears tenuous, at best.
Trumpflation is showing no signs of slowing
To preface this discussion of inflation, it’s important to note that some level of rising prices is normal and healthy. The Federal Reserve’s 2% long-term inflation target often serves as the benchmark for the U.S. economy.
While not all aspects of rising prices can be directly linked to Donald Trump’s decisions, two specific actions by the president have led to concurrent price shocks.
The first inflationary shock stems from President Trump’s tariff and trade policy, which he introduced in early April 2025. His initial plan entailed a sweeping global tariff, along with dozens of higher reciprocal tariffs on countries deemed to have adverse trade imbalances with America. Although the U.S. Supreme Court struck down a majority of Trump’s tariffs in a February 2026 ruling, the president imposed sweeping global tariffs using a different justification shortly thereafter.
The problem with imposing a duty on unfinished imported goods, such as steel, is that it can increase domestic production costs, which are then passed on to consumers. Now-former Fed Chair Jerome Powell frequently cited the price stickiness of Trump’s tariffs on the goods sector as a reason behind elevated inflation.
