An Inflation Double Whammy Awaits Wall Street, Making a Stock Market Crash Likelier Under President Donald Trump
From a purely statistically standpoint, outsize stock market gains have gone hand-in-hand with Donald Trump’s presidency. Despite historic volatility during the early stages of the COVID-19 pandemic and, more recently, the tariff tantrum in April 2025, the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have generated double-digit annualized returns with Trump in the White House.
But history also makes it clear that bull markets aren’t indefinite. While several catalysts threaten to weigh down the stock market, including otherworldly valuations and a parabolic move in outstanding margin debt, inflation is arguably the toughest to sweep under the rug.
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Although the headline U.S. inflation rate has backed off from a three-year high, Wall Street isn’t out of the woods. An inflation double whammy awaits equity markets in the second half of 2026, significantly increasing the likelihood of a stock market crash under President Trump.
Trumpflation has entered a new stage
As recently as February, trailing 12-month (TTM) inflation was a modest 2.4% and moving closer to the Federal Reserve’s long-term target of 2%. Though Trump’s tariffs were modestly lifting prices in the goods sector in February (something now-former Fed Chair Jerome Powell regularly alluded to in Federal Open Market Committee (FOMC) statements), things appeared to be moving in the right direction.
The Iran war changed everything. The president’s decision to attack Iran prompted the latter to shut down the Strait of Hormuz to most maritime traffic. This effectively halted the flow of a fifth of the world’s petroleum liquid demand and sent gas prices soaring at the fastest pace in over three decades.
Between February and May, TTM inflation jumped from 2.4% to a three-year high of 4.2%, driven almost entirely by a rapid rise in energy commodities.
The good news for consumers is that crude oil prices fell significantly in June, resulting in some relief at the fuel pump. But even though headline inflation fell to 3.5% in June, Trumpflation (i.e., inflation driven by Trump’s policies) is far from over.
Despite lower energy prices driving down inflation last month, Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy costs, has hardly budged. The Cleveland Fed’s Inflation Nowcasting tool estimates that Core PCE will pare modestly to 3.33% in June from 3.4% in May, before slightly reaccelerating to 3.36% in July.
