Will There Be a Stock Market Crash Under President Donald Trump? A New Downside Catalyst Just Entered the Picture.

Statistically, Wall Street has enjoyed having President Donald Trump in the White House. During his first term, the preeminent Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and tech-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) soared 57%, 70%, and 142%, respectively.

Even with two separate swoons since the start of Trump's second term (the tariff tantrum and Iran war pullback), we're witnessing an encore performance from equities. The Dow, S&P 500, and Nasdaq have rallied 17%, 26%, and 37%, respectively, in Trump's second term (through the end of May 2026).

President Trump delivering a speech. Image source: Official White House Photo by Joyce N. Boghosian.

Catalysts for this historic rally include the evolution of artificial intelligence (AI), the advent and proliferation of quantum computing, record S&P 500 share buybacks in 2025, and better-than-expected corporate earnings.

But things may not be as perfect as Wall Street's major stock indexes make them appear. Downside catalysts have been mounting for months -- and the newest one to enter the picture may be the spark that ignites a stock market crash under President Trump.

Several threats loom large for Wall Street

Arguably, the most front-and-center concern for the stock market is the (as of this writing) ongoing Iran war and the inflationary impact this event is having on the U.S. economy.

Shortly after Trump gave the U.S. military the OK to attack Iran on Feb. 28, the latter closed the Strait of Hormuz to nearly all commercial vessels. This action effectively halted the flow of 20 million barrels of petroleum liquids per day (about 20% of worldwide demand), sending fuel prices soaring.

US Inflation Rate data by YCharts.

The problem with energy price shocks is that there are several stages. Businesses often endure the adverse effects of higher energy prices months later, leading to a second wave of inflation in the U.S. economy. According to the Cleveland Fed's Inflation Nowcasting tool, trailing 12-month inflation is projected to jump to 4.18% in May, up from a reported 2.4% in February.

This inflationary surge can't be swept under the rug and may force the Federal Open Market Committee (FOMC) to raise interest rates -- a potentially devastating outcome for a historically pricey stock market that's been propped up by jaw-dropping spending tied to the AI data center build-out.

Additionally, the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), shows that the stock market is extremely expensive. The Shiller P/E Ratio has averaged close to 17.4 over the last 155 years. It ended May at 42.66, which is surpassed only by the all-time high of 44.19 (December 1999) in the lead-up to the bursting of the dot-com bubble.

Shiller PE is now less than 5% away from surpassing the level reached during the Dot Com Bubble which would give the stock market its most expensive valuation in history 🚨🚨🚨 pic.twitter.com/Qd8rvlVvUn

-- Barchart (@Barchart) May 14, 2026

History shows that CAPE Ratios above 30 are unsustainable over long periods. The previous five times the Shiller P/E exceeded 30 during a continuous bull market, the Dow, S&P 500, and/or Nasdaq Composite eventually shed 20% or more of their value.

Even margin debt is a glaring worry for Wall Street. When margin debt rises rapidly over a short period, signaling more risk-taking by investors, it's consistently foreshadowed a stock market top. Between April 2025 and April 2026, FINRA statistics show that outstanding margin debt has soared from $850.6 billion to a record $1.304 trillion.

Despite these very clear stock market crash warning signs, it's a new catalyst that may pull the rug out from beneath investors.

Image source: Getty Images.

The SpaceX IPO may prove disastrous for the Trump bull market

Aside from the rise of AI, the biggest buzz on Wall Street has to do with the forthcoming SpaceX initial public offering (IPO), slated for June 12. To date, the largest-ever IPO is overseas oil titan Saudi Aramco, which raised $29.4 billion following its December 2019 debut. Elon Musk's SpaceX aims to shatter this record by raising up to $75 billion with its IPO, while commanding a valuation of at least $1.8 trillion.

It's easy to understand why investors are so excited about SpaceX's debut. This is a company that combines two of the hottest addressable opportunities on Wall Street (AI and the space economy), and is led by Elon Musk, who turned electric-vehicle maker Tesla into a trillion-dollar business.

But a perfect storm is brewing around the SpaceX IPO that has the potential to cause a stock market crash.

To state the obvious, there are very real valuation concerns. The SpaceX prospectus shows Musk's company generated $18.67 billion in sales last year. If it were to achieve a $1.8 trillion valuation on June 12, it would be trading at a price-to-sales (P/S) ratio of 96! For context, no public company at the forefront of a game-changing technology has ever been able to sustain a P/S ratio above 30 over the long run.

Historical precedent also shows that large-scale IPOs typically stumble out of the starting gate. Facebook (now Meta Platforms) and Saudi Aramco lost 38% and 15%, respectively, in the six months after their debuts.

Rule changes for the SpaceX $SPCX IPO:

Index providers waived the profitability requirement and cut the seasoning window from 90 days to 5.

This forces over $30 trillion in passive 401k and retirement money to buy SpaceX at IPO valuations.

Bloomberg Intelligence estimates S&P...

-- Hedgeye (@Hedgeye) May 29, 2026

However, the damning factor for the stock market is the Nasdaq's recent rule change that allows SpaceX fast entry into the Nasdaq-100. As long as SpaceX is among the 40 largest non-financial companies, it can be added to the Nasdaq-100 after just 15 trading days (i.e., after the closing bell on July 6).

On the one hand, this addition will force Nasdaq-100-mirroring index funds to buy shares of SpaceX. While fast entry can lead to a short-term pop in SpaceX stock, the company's limited float (i.e., tradable shares), insider lock-up schedule that allows insiders to sell shares, and otherworldly valuation, can quickly pop its bubble-like valuation.

Given that SpaceX's trillion-dollar valuation will afford it meaningful influence in the market-cap-weighted Nasdaq-100, it can be the trigger that initiates a stock market crash under President Trump. While a stock market crash isn't guaranteed, the likelihood of one continues to climb.

Sean Williams has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms and Tesla. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.