Will Ebiefung, The Motley Fool
4 min read
Donald Trump’s return to the White House sparked a new period of uncertainty as investors must now navigate the impacts of his unorthodox and often contradictory policy initiatives. The S&P 500 so far has largely shrugged off these challenges with a gain of 17.9% in 2025 and just over 11% so far this year as optimism over the generative artificial intelligence (AI) boom continues to dominate the narrative.
How much longer can stocks ignore the elephant in the room? Let’s dig deeper into the challenges facing the current market — referencing historical parallels to try to figure out what might come next for investors.
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An inflationary administration
While the Trump administration continues to claim that it wants to lower prices, its policy decisions are having the opposite effect. The biggest challenge comes from the war in Iran, which has led to severe disruptions in the Strait of Hormuz, a chokepoint responsible for the transit of about 25% of global maritime oil shipment volume. The situation is similar to the oil shocks of 1973 and 1979, when disruptions in Middle Eastern supply led to a mix of slow U.S. growth and rising inflation, often referred to as stagflation.
The situation worsened this month, when Iran-backed militants opened another front near the Strait of Bab al-Mandeb, responsible for around 11% of maritime oil volumes. Brent crude prices are up 72% year to date, helping spark inflationary pressure throughout the U.S. economy.
Trump’s aggressive trade policy could worsen the inflation situation. While the Supreme Court struck down many of his most extreme “Liberation Day” tariffs, the president continues to seek to implement tariffs through other legal justifications. And on Sept. 17, the administration got a huge win when the House of Representatives cleared a bill that could allow tariffs of up to 100% on countries that are top purchasers of Russian oil. This could raise consumer prices while further disrupting the oil market.
Can inflation kill the AI boom?
While the rising fuel costs and inflation could be devastating for regular consumers, they probably won’t have a direct impact on stock market performance. According to analysts at Goldman Sachs, half of the S&P 500’s earnings growth is now coming from spending related to artificial intelligence (AI). Hyperscalers are spending hundreds of billions to buy data center infrastructure, sending chipmaker profits through the roof.
