The Trump Bull Market Has Entered Its Final Chapter, According to This Historically Flawless Indicator

In case you haven't noticed, the stock market has historically thrived when Donald Trump is in the White House. During his first, non-consecutive term, the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) soared 57%, 70%, and 142%, respectively.

Since President Trump's second term started on Jan. 20, 2025, it's been an encore performance for the Trump bull market. Through the closing bell on May 20, the Dow, S&P 500, and Nasdaq Composite have rallied 17%, 25%, and 37%, respectively.

President Trump delivering remarks. Image source: Official White House Photo by Andrea Hanks, courtesy of the National Archives.

However, outsize returns under Trump may not be sustainable much longer. Although no metric or historical event can guarantee short-term directional movements in the Dow, S&P 500, and Nasdaq Composite, one indicator has been flawless in foreshadowing significant stock market declines -- and it's currently sounding a warning louder than ever before.

Artificial intelligence and corporate tax policy have fueled the Trump bull market rally

But before digging into the details of what history says will go wrong, it's imperative to lay the foundation of what's gone right under President Trump.

To begin with, not all Trump bull market tailwinds are tied to the president. For instance, the evolution of artificial intelligence (AI) and the advent and proliferation of quantum computing were occurring well before the president took office for his second term.

Investors have been waiting decades for a technological leap forward to rival what the internet did for corporate America and retail investors, and they finally have it with AI. Empowering software and systems with the tools to make split-second, autonomous decisions is a multitrillion-dollar technology that can benefit virtually all sectors and industries.

S&P 500 buybacks were $249.0b in 3Q25, up 6.2% from 2Q25 and up 9.9% from 3Q24; top 20 S&P 500 companies accounted for 49.5% of 3Q25 share repurchases, down from 51.3% in 2Q25
⁦@SPDJIndices⁩ pic.twitter.com/dwa0aikdw2

-- Liz Ann Sonders (@LizAnnSonders) December 19, 2025

But certain aspects of this rally can be directly traced back to Donald Trump. For example, Trump's signing of the Tax Cuts and Jobs Act (TCJA) in December 2017 transformed corporate America. The TCJA permanently lowered the peak marginal corporate income tax rate from 35% to 21%.

Though it was expected that public companies retaining more of their earnings would lead to increases in hiring, acquisitions, and innovation, the most notable impact was observed in share buyback activity. Research from The Motley Fool estimates that S&P 500 companies repurchased more than $1 trillion of their stock in 2025.

While AI spending and share repurchase activity remain robust, one metric suggests the Trump bull market is nearing its end.

Image source: Getty Images.

Margin debt is rapidly rising, which is historically terrible news for Wall Street

To be fair, there's a laundry list of reasons the Trump bull market can be knocked off its pedestal, including nosebleed stock valuations. But outstanding margin debt may be the metric that correctly foreshadows the Trump bull market's demise.

Margin is money that an investor borrows from their broker to purchase or short-sell securities. When it's used to purchase a security, it effectively acts as leverage. It can pump up your profits if the security moves higher, but it can also amplify your losses if it moves in the opposite direction.

In addition to amplifying potential profits and losses, investors pay their broker interest on the amount borrowed. This borrowing rate is subject to change by your broker and may increase based on several factors, including prevailing interest rates.

While it's perfectly normal for outstanding margin debt to modestly climb over the long-term, it's a glaring red flag when margin debt increases rapidly over a short period. Based on the latest update from FINRA, margin balances have soared from $850.6 billion in April 2025 to a record $1.304 trillion one year later.

Margin debt usage for stock trading is at an all-time record.

As a percentage of the economy, it is above the levels of the 2000 internet bubble and the financial crisis of 2008. pic.twitter.com/MWKseScwXR

-- FXHedge (@Fxhedgers) May 16, 2026

Over the last 30 years, there have been just four instances where outstanding margin debt went parabolic:

• In the lead-up to the bursting of the dot-com bubble in March 2000.
• In the year before the financial crisis took shape in 2008-2009.
• In the year before the 2022 bear market took hold.
• Over the last 12 months to the present.

All three prior occurrences correlate with some of the worst stock market returns over the last 30 years. The dot-com bubble wiped out 49% of the S&P 500's value and 78% of the Nasdaq Composite's. During the financial crisis, the S&P 500 shed 57% of its value. Meanwhile, the 2022 bear market cut Wall Street's benchmark index by 25%.

Rapid increases in margin debt coincide with periods of irrational investor exuberance and outsize risk-taking -- i.e., factors that have historically signaled a stock market top.

With outstanding margin debt rising 53% over the last year, it might only take a stock market correction or steep sell-off to create a cascade effect. In other words, if investors using margin to leverage their position(s) can't come up with the necessary collateral to keep their positions open, we could witness a wave of margin-driven selling that craters the Trump bull market and potentially even leads to a crash.

Although outstanding margin debt can't pinpoint when the stock market will top, it has been flawless in foreshadowing significant downside in equities over the short run. Based on what this time-tested indicator has to say, the Trump bull market has entered its final chapter.

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.