It may be hard to believe, considering the chaos and economic uncertainty during President Donald Trump’s second term, but his time in office has correlated with strong stock market performance. This year is no exception, with the benchmark S&P 500 up by a healthy 14% year to date, above its historical average of about 10%.
That said, some of the president’s unorthodox decisions may be coming home to roost for the U.S. economy. And the bond market is flashing one of the biggest warnings of all. Let’s dig deeper into the pros and cons of the Trump administration to decide what might come next for equity markets.
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Why do markets like Trump?
The S&P 500 generated a total return of 81.3% during Trump’s first term, from 2017 to 2021. And so far, the index has jumped 37% since his victory in 2024. Most of this is likely due to tech innovation and other factors outside the president’s control. But his administration has also helped lift investor sentiment through a deregulatory stance and legislation like the One Big Beautiful Bill, which cut corporate taxes.
A pro-business presidency comes at a good time for America’s big-tech industry, which has been struggling with heavy fines and other punitive regulations in foreign jurisdictions like the European Union (a practice the White House has called “overseas extortion”). America’s tech industry is also embarking on one of its most capital-intensive infrastructure building booms with generative artificial intelligence (AI). And many on Wall Street are happy to have a government that isn’t standing in the way.
However, despite the good track record, there are growing signs that the Trump stock market boom may not last.
Inflation and spiking bond yields
While Trump has been good for market sentiment, many of his decisions have been objectively bad for the economy. The most glaring examples are his capricious tariff policies (levies average 9.6% across all imports, according to the independent Tax Policy Center) and the war in Iran, which has sent Brent crude oil prices up by 60% since the start of the year.
These factors have contributed to the U.S. inflation rate remaining above the Federal Reserve’s target of 2%. The central bank has responded by hiking its benchmark interest rate to between 3.75% and 4%.
