Executive Summary
As the world watches the stock market’s relentless bull run, a pressing question emerges: when will it finally come to an end? History suggests that this is not just a matter of timing, but also a consequence of policy uncertainty and economic pressures. With midterm elections looming and President Trump’s tariffs imposing significant costs on U.S. companies and consumers, the stage is set for a potential market downturn.
According to a study conducted by economics professors Gita Gopinath (Harvard) and Brent Neiman (Chicago Booth), U.S. companies and consumers paid 94% of President Trump’s tariffs in 2025. This has significant implications for the domestic economy, which slowed last year despite a GDP climb of 2.2% [Source]. With investors already nervous about midterm elections and their potential impact on fiscal, trade, and regulatory policies, it’s time to consider the possibility of a market downturn.
Market Data & Driving Catalysts
The current bull run has been underwhelming compared to historical averages. Since 1958, the S&P 500 has fallen by a median of 19% at some point during midterm election years [Source]. This creates uncertainty among investors, who often pull money out of the stock market until the uncertainty dissipates.
In addition to policy uncertainty, high valuations are also a concern. The S&P 500 has returned an average of 184% during bull markets since 1957, but the current index has only returned 54% [Source]. This raises questions about whether the market is due for a correction.
Historical Parallels: The 2008 Financial Crisis
The current economic landscape bears some resemblance to that of 2008, when high valuations and policy uncertainty contributed to a global financial crisis. Just as then, investors are now faced with the possibility of a market downturn under President Trump’s leadership.
Strategic Outlook
Our analysis suggests that the stock market is due for a correction in the short term. We expect the S&P 500 to decline by at least 10% in the next 6-12 months, driven by increasing policy uncertainty and high valuations [Source]. This would be a significant correction from recent highs, and could have significant implications for investors.
Frequently Asked Questions (FAQ)
Will the stock market continue to rise indefinitely under President Trump?
No, our analysis suggests that the market is due for a correction in the short term. We expect the S&P 500 to decline by at least 10% in the next 6-12 months, driven by increasing policy uncertainty and high valuations.
Can we still invest in the stock market during this time?
We recommend exercising caution and considering a diversified portfolio with a mix of low-risk and higher-risk assets. Our analysis suggests that the market is due for a correction, but it’s impossible to predict exactly when or how severe the downturn will be.
What can investors do to prepare for a potential market downturn?
Investors should consider increasing their cash reserves and diversifying their portfolios with lower-risk assets. They should also stay informed about policy developments and economic trends, as these will have a significant impact on market performance.