3 Reasons Stocks Might Crash Under Trump in 2026

President Donald Trump's election victory in November 2024 led to widespread optimism in cryptocurrency and financial markets. Investors were encouraged by the president's pro-business stance, which involved lower taxes and less regulation. And AI-led growth helped the S&P 500 rise by 17.9% in 2025, outperforming its 100-year average of around 10%.

But the honeymoon period is over. And 2026 could be the make-or-break moment for the Trump economy. Let's discuss three reasons why a significant drop in stock valuations may be on the horizon.

The Iran war could have a long-lasting impact

In February, the U.S. and Israel commenced military strikes on Iran, a country responsible for 4% of the world's oil. More importantly, the conflict has drawn in other major Middle Eastern oil producers, whose facilities have been targeted or have had difficulty transporting their cargoes to consumers due to a blockage in the Strait of Hormuz.

Crude oil futures have already risen 74% year to date to roughly $100. And while this challenge may have initially seemed short-lived, there are growing signs of a long-lasting crisis in the energy markets.

According to the French government, between 30% and 40% of Gulf oil refining capacity has been damaged or destroyed during the conflict, creating a shortage of 11 million barrels per day. Repairs could take years (assuming no additional strikes are made). Worse still, the entire region could begin to take on a risk premium that slows down investment and drives up costs, as companies will be less willing to bet their money on projects that could be targets in future military conflicts.

Image source: Getty Images.

Inflation could come roaring back

Higher energy costs lead to structural inflation because fossil fuels are crucial for everything from logistics to electricity grids. Analysts at Goldman Sachs expect the war to spike U.S. inflation by 0.2 percentage points to 3.1% by the end of 2026. This might not seem like a lot on the surface. But consumer confidence is already in decline, and another increase in the cost of living could tip the economy into a recession.

Furthermore, higher inflation complicates the Federal Reserve's job. The central bank wants to boost the job market by lowering interest rates, but it's risky to do so when inflation is also rising, because lower rates can make inflation worse. Investors should expect interest rates to stay higher for longer. And this can cause stocks to underperform because it increases the cost of the capital businesses need to fund their operations.

Higher energy costs hurt AI economics

Over the last three years, spending on generative artificial intelligence (AI) has helped prop up an otherwise lackluster economy. And there are no signs this will end anytime soon, with big tech's data center build-out expected to hit an eye-popping $700 billion this year alone.

That said, the rising energy costs complicate the situation substantially. Large language models (LLMs) such as OpenAI's ChatGPT and Anthropic's Claude are exceptionally energy-intensive, with one query estimated to cost $0.36 and demand 10 times as much energy as a Google search, according to data published by the International Energy Agency. While AI data centers don't run on oil, they often rely on other types of fossil fuels, such as natural gas, which has also seen prices spike during the Iran war.

Meanwhile, many AI projects are already deeply unprofitable and showing signs of scaling back. This month, OpenAI axed its video generation platform, Sora, likely due to high compute costs and an unclear path to profitability. This might be one of the first dominoes to fall in Trump's increasingly uncertain economy.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.