Is a Stock Market Crash Looming Under President Donald Trump? Nearly 156 Years of History Offers Up an Unpleasant Truth for Wall Street.

For more than a century, the stock market has been a wealth-building machine. While Wall Street's major stock indexes, the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC), commonly advance under most presidents, the annualized returns of these indexes have been especially pronounced under President Donald Trump.

During Trump's first non-consecutive term (Jan. 20, 2017 – Jan. 20, 2021), the Dow, S&P 500, and Nasdaq Composite rallied 57%, 70%, and 142%, respectively. His second term has, thus far, been a repeat performance, with the Dow, S&P 500, and Nasdaq climbing 23%, 29%, and 35% (through Sept. 4, 2026).

Several factors have fanned the flames of optimism on Wall Street, including the artificial intelligence infrastructure build-out, better-than-expected corporate earnings, and record share buyback activity. The latter comes courtesy of President Trump's flagship Tax Cuts and Jobs Act (signed into law in December 2017), which permanently lowered the peak marginal corporate income tax rate from 35% to 21%.

Wall Street's bull market under President Trump may be running on borrowed time. Image source: Official White House Photo by Daniel Torok.

But things may not be as picture-perfect under Trump as the stock market's major indexes suggest. When things seem too good to be true on Wall Street, history shows that they often are.

While there are always headwinds threatening to pull the rug out from beneath investors, one metric, encompassing nearly 156 years of history, firmly puts the prospect of a stock market crash under President Trump on the table.

Stock valuations are stretched to nearly never-before-seen levels

Several proverbial warning shots have been fired at Wall Street recently, including outstanding margin debt hitting an all-time high and long-duration Treasury bond yields reaching levels last seen during the financial crisis. But perhaps the greatest trigger for a stock market crash under President Trump is equity valuations.

To be upfront, valuing stocks and/or the broader market is a very tricky subject. Since there isn't a blueprint for evaluating all businesses, valuations will always contain some degree of subjectivity or emotion. Subjectivity and emotion are what make accurately predicting short-term directional moves in the stock market so challenging.

However, one valuation tool has a phenomenal track record of cutting through investors' subjectivity and emotion to provide the closest thing they'll get to an apples-to-apples broad-market valuation comparison. This special valuation measure is the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio).

Economists introduced the Shiller P/E Ratio in 1988, but backtested it to January 1871, providing investors with 156 years of invaluable data. Since the Shiller P/E is based on average inflation-adjusted earnings over the previous decade, recessions can't adversely impact its usefulness in the same way that economic downturns trip up the traditional P/E ratio that only relies on trailing 12-month earnings.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt

— Barchart (@Barchart) July 11, 2026

Over nearly 156 years, the S&P 500's CAPE Ratio has averaged a modest 17.42. On Sept. 4, 2026, the CAPE Ratio clocked in at 41.41, just a stone's throw from its current bull market high of 42.84 (set on June 1, 2026), and within striking distance of the highest-ever multiple of 44.19 (set in December 1999).

History plainly shows us that premium valuations aren't well tolerated on Wall Street.

Since January 1871, the S&P 500's Shiller P/E Ratio has exceeded 30 on six occasions, including the present. While the Shiller P/E offers no guidance in pinpointing when the stock market will top, or which catalyst will send equities over the edge, it does have an uncanny ability to foreshadow significant downside.

Following the previous five occurrences, the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite plunged between 20% and 89%. The only time the stock market was pricier than it is now, during the dot-com hype, saw the S&P 500 and Nasdaq Composite shed 49% and 78% of their respective values.

While the S&P 500's CAPE Ratio does offer an unpleasant truth for investors that premium valuations are a recipe for disaster, it doesn't guarantee that the foreshadowed downside will occur in the form of a stock market crash. However, the extensive backtested history of this valuation tool does imply a heightened probability of a crash under President Trump.

Image source: Getty Images.

Historical relevance is a door that swings in both directions

Although nothing is guaranteed on Wall Street, past events have a way of forecasting the future with remarkable accuracy in select situations. For example, the Shiller P/E Ratio has a perfect track record of foreshadowing significant stock market declines.

But the beautiful thing about history is that it works in both directions. Though several past events point to stock market weakness in the presumed not-too-distant future, widening the lens produces a very different outlook.

Stock market corrections, bear markets, and even crashes, are normal, healthy, and inevitable aspects of putting your money to work on Wall Street. Most importantly, they're usually short-lived.

In late May, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that compared the calendar-day length of every S&P 500 bull and bear market since the start of the Great Depression in September 1929. When the 27 bear markets were compared to the 27 bull markets, a night-and-day difference became readily apparent.

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft

— Bespoke (@bespokeinvest) May 30, 2026

Bespoke found that the average bear market lasted only 286 calendar days (roughly 9.5 months), and that no 20% or greater decline in the benchmark index persisted for more than 630 calendar days.

On the other hand, the typical bull market has endured for 1,023 calendar days over the last 97 years, which is approximately 3.6 times longer than the average bear market. Furthermore, just over half of the 27 bull markets lasted longer than the aforementioned lengthiest bear market.

Although the velocity of bear markets and elevator-down moves can be scary at times, taking a step back and looking at the bigger picture (and historical trends) completely alters the outlook.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.