Stock Market Investors Just Got Bad News About President Trump’s Economy. History Says a Domino Effect Could Follow.
The S&P 500 (SNPINDEX: ^GSPC) has advanced 8% year to date, and the benchmark index currently trades near its record high. However, investors recently got some bad news about President Trump’s economy. Consumer sentiment hit a record low in May, after inflation accelerated to a three-year high in April.
In particular, history says the resurgence in inflation could create a domino effect that sinks the stock market. Here are the important details.
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The Consumer Sentiment Index just hit a record low
The University of Michigan conducts a monthly survey of consumers that covers three broad areas: personal finances, business conditions, and buying conditions. Survey participants answer questions about the current economic environment and their expectations about the future. Their answers are consolidated into a single number that measures consumer sentiment.
The Michigan Consumer Sentiment Index (CSI) dropped to 48.2 in May, down from 49.8 in April. That’s the lowest score on record since surveys began in 1952. About one-third of survey participants mentioned high gasoline prices and tariffs as reasons for their gloomy outlook.
In fact, concerns about affordability have been a defining theme of Trump’s presidency. The Michigan CSI has averaged 56.2 throughout his second term. Not only is that much worse than the average of 93.2 during his first term, but it’s also the lowest score under any U.S. president since the University of Michigan began collecting data seven decades ago.
Extremely low consumer sentiment is an ominous sign for investors because consumer spending accounts for about two-thirds of GDP, which makes it the primary engine of economic growth. Nervous consumers may spend money more cautiously than confident consumers, which could put downward pressure on corporate earnings and stock prices.
Inflation just accelerated to its highest level in three years
President Trump’s decision to attack Iran in late February has resulted in the most severe oil supply disruption in history. The war has not only stopped ships from crossing the Strait of Hormuz, a waterway in the Persian Gulf that provides transit for 20% of global oil, but it has also damaged oil infrastructure across the Middle East.
The Iran conflict quickly drove U.S. gasoline prices to a multiyear high, but price increases are now diffusing through the economy by raising manufacturing and transportation costs. CPI inflation accelerated to 3.8% in April 2026, the highest reading since May 2023. Worse yet, inflationary pressures may persist for months even in the best-case scenario.
