Trump Says the Market Is Going to "Go Through the Roof." His Iran Escalation and New Tariffs Suggest Otherwise.

President Donald Trump recently provided a ringing endorsement for Wall Street -- literally. The president rang in the opening bells for both the New York Stock Exchange (NYSE) and the Nasdaq (NASDAQ: NDAQ) Stock Exchange on July 6, 2026, from the Oval Office. He proclaimed, "We have a hot country. I think the market is going to go through the roof."

While Trump exuded optimism, the S&P 500 (SNPINDEX: ^GSPC) has slipped since his remarks. Perhaps the stock market will eventually "go through the roof," but the president's escalation of the Iran war and new tariffs suggest otherwise.

Image source: Official White House photo by Daniel Torok.

Increased hostilities, increased market volatility

CNN's Aaron Blake estimated that Trump has claimed that a peace deal was at hand with Iran 38 times. And that number was calculated nearly two months ago. Since then, a ceasefire between the U.S. and Iran went into effect but quickly evaporated.

In recent days, Iran launched a missile attack on a U.S. military base in Jordan. The president promised, "We're going to be hitting them very hard because it's our turn to hit them." Iran's Islamic Revolutionary Guard Corps warned that "the aggressor will be punished" following retaliatory strikes.

The escalating conflict is driving oil prices higher. The average national gasoline price stood at around $4.10 per gallon as of July 30, up more than 30% from the year-ago average of $3.13 per gallon.

So far, the stock market has managed to climb a wall of worry despite soaring fuel prices. However, there are a couple of reasons why this dynamic may not last much longer.

First, higher energy prices are pushing inflation higher and raising the likelihood that the Federal Reserve will increase interest rates. CME Group's (NASDAQ: CME) FedWatch now estimates an 83.4% chance of a rate hike at the Fed's September meeting. The market's momentum would almost certainly be zapped if interest rates rise.

Second, the surge in oil prices has been more muted than it would have otherwise been due to the U.S. and China tapping their strategic petroleum reserves. Sooner or later, though, those reserves will be too depleted to continue this strategy. The stock market has handled oil prices up to $112 per barrel relatively well. But it could be a much different story if the U.S. and/or China can no longer rely on their petroleum reserves and oil prices skyrocket even more.

"Tariff Man" strikes again.

Trump referred to himself frequently during his second presidential campaign as "Tariff Man." Although the U.S. Supreme Court struck down his broad tariffs under the International Emergency Economic Powers Act (IEEPA), the president remains adamant about sticking with his trade policy.

On July 24, the White House announced sweeping new tariffs based on Section 301 of the Trade Act of 1974. The Trump administration imposed tariffs ranging from 10% to 12.5% on products imported from more than 80 countries, justifying the move by claiming that the affected nations failed to effectively curtail the use of forced labor.

Some have referred to the inflationary impact resulting from the president's tariffs as "Trumpflation." Whatever you call it, any additional inflation on top of soaring energy prices resulting from the Iran war makes the Fed's job harder -- and could further increase the probability of a rate hike that causes stocks to sink.

New Fed Chair Kevin Warsh, whom Trump championed, mentioned during his press conference following the latest FOMC meeting that he and other Federal Open Market Committee (FOMC) members had considered multiple recent "economic shocks." "Substantial increases in tariff rates" was one of the shocks he listed.

What should investors do?

Most investors haven't panicked so far over the Iran war or the inflationary pressure from Trump's tariffs. They shouldn't panic now, either.

It's possible that the president's prediction that the stock market will take off could be right. Perhaps a lasting peace agreement with Iran can be achieved. Maybe the latest tariffs will lead to negotiations with other countries that minimize the negative impact. The November elections could lead to a divided Congress, which could be good news for investors.

However, there's a real chance that the stock market could tread water at best, and even enter a correction, should rate hikes be on the way. Prudent investors can be prepared for this possibility by increasing their cash positions and buying defensive assets, such as inflation-resistant stocks.

Above all, investors should be patient. Over the long run, the stock market has indeed gone "through the roof."

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.