During President Donald Trump's first term in office, all three of Wall Street's major stock indexes soared. The ageless Dow Jones Industrial Average (^DJI +0.87%), benchmark S&P 500 (^GSPC +0.85%), and technology-dependent Nasdaq Composite (^IXIC +0.62%) skyrocketed by 57%, 70%, and 142%, respectively.
In 2025, this stock market trio delivered an encore performance following the first year of Trump's second, non-consecutive term. When the curtain closed on Dec. 31, the Dow, S&P 500, and Nasdaq Composite had climbed 13%, 16%, and 20%, respectively, with all three notching several record-closing highs throughout the year.
President Trump delivering remarks. Image source: Official White House Photo by Andrea Hanks, courtesy of the National Archives.
While a precedent of big-time outperformance has seemingly been set by President Trump's five years in office, history has proven to be a pendulum that swings both directions. Although the prospect of lower interest rates and the artificial intelligence (AI) revolution can be upside catalysts for Wall Street in the new year, three historically accurate correlations point to the growing possibility of a steep correction, if not a stock market crash, under Trump in 2026.
History has a way of rhyming on Wall Street
Before digging any deeper, let me make clear that there isn't a single correlative event or economic data point that can guarantee short-term directional movements higher or lower for the stock market. If there were an indicator that could concretely predict the future, all investors would be using it.
With this being said, some historical correlations have strongly or flawlessly foreshadowed directional moves in the Dow Jones, S&P 500, and/or Nasdaq Composite. It's these correlated events that may offer investors an edge.
For example, the S&P 500 gained 16% last year, marking the third consecutive year it's rallied by at least 15%. Looking back 98 years, there have only been three instances where Wall Street's benchmark index has gained at least 15% for three (or more) consecutive years: 1995 through 1999, 2019 through 2021, and 2023 through 2025.
FUN FACT 🚨: S&P 500 just posted its 3rd consecutive year of 15%+ gains, a streak that has now happened just 3 times in history 📈 The other two times were the run-up to the Dot Com Bubble and 2019-2021 👀
-- Barchart (@Barchart) January 1, 2026
The phenomenal five-year run from the mid-to-late 1990s was followed by the bursting of the dot-com bubble, which saw the S&P 500 and Nasdaq Composite lose 49% and 78% of their respective value. Meanwhile, the fiscal stimulus-fueled rally from 2019 through 2021 gave way to the 2022 bear market. This roughly nine-month decline wiped away a quarter of the S&P 500's value. Historically speaking, the stock market appears poised for a decline.
Secondly, there are historical valuation concerns for the second year of Trump's second-term presidency. While I've previously referenced the priciness of the stock market, in relation to the Shiller Price-to-Earnings (P/E) Ratio, it's a point made by Oaktree Capital Management co-founder Howard Marks that strikes to the heart of Wall Street's potential valuation woes.
Howard Marks:
-- Patient Investor (@patientinvestt) December 20, 2025
"When you buy the S&P 500 at a 23x P/E, your 10-yr annualized return has always fallen between +2% and –2%, IN EVERY CASE, EVERY CASE!" pic.twitter.com/R3CdgDmLt6
According to Marks, buying the S&P 500 at a forward P/E ratio of 23 (or above) has always resulted in 10-year annualized returns for the broad-based index ranging from a gain of 2% to a loss of 2%. In simpler terms, historical return data shows that when the stock market is pricey, equities underperform. The S&P 500's forward P/E, as of this writing on Jan. 5, is closing in on 23.
The third historical dilemma for Wall Street is that this is a midterm election year. According to data aggregated by Carson Group's Chief Market Strategist Ryan Detrick, the S&P 500 experiences larger peak-to-trough corrections during midterm years, with the average decline since 1950 standing at 17.5%. For what it's worth, the peak-to-trough dip during Trump's first term clocked in at just shy of 20%.
Get ready to hear a lot about this, but midterm years tend to see their ultimate low later in the year and have some of the largest intra-year corrections.
-- Ryan Detrick, CMT (@RyanDetrick) November 16, 2025
The good news? Since 1950, off those lows stocks have never been lower a year later and up more than 30% on average. pic.twitter.com/WuWr8vWCJN
Midterms introduce uncertainty, which is something that investors typically dislike. With Republicans holding a narrow seat advantage in the House of Representatives, a slight shift from voters could alter congressional power and stall President Trump's agenda for the final two years of his second term.
While none of these three historically accurate correlations guarantees a stock market crash under Trump in 2026, they do, collectively, point to a heightened risk of a significant downturn in the new year.
Image source: Getty Images.
History is a two-sided coin that overwhelmingly favors optimists
Following three straight years of outsize returns, the last thing investors probably want to hear about is the prospect of a double-digit percentage decline in 2026. However, history is a two-sided coin that disproportionately favors those who think long-term and remain optimistic.
On the one hand, stock market corrections, bear markets, and even elevator-down moves (i.e., crashes) are normal and inevitable. We might not like seeing red arrows in our portfolios, but these are often emotion-driven events by investors that neither fiscal nor monetary policy maneuvering can stop.
The silver lining is that stocks spend considerably more time advancing than declining.
In June 2023, when the S&P 500 had officially risen 20% from its 2022 bear market low, researchers at Bespoke Investment Group posted the data set below, which compares the length of every S&P 500 bull and bear market since the beginning of the Great Depression (September 1929).
It's official. A new bull market is confirmed.
-- Bespoke (@bespokeinvest) June 8, 2023
The S&P 500 is now up 20% from its 10/12/22 closing low. The prior bear market saw the index fall 25.4% over 282 days.
Read more at https://t.co/H4p1RcpfIn. pic.twitter.com/tnRz1wdonp
Out of the 27 bear markets analyzed, only eight endured for at least one year. What's more, the average S&P 500 bear market decline found its bottom in just 286 calendar days, or approximately 9.5 months.
In comparison, 14 out of 27 S&P 500 bull markets -- including the current bull market, when extrapolated to the present day -- have lasted longer than the lengthiest bear market (630 calendar days). On average, S&P 500 bull markets persisted for 1,011 calendar days from September 1929 to June 2023.
Data from Crestmont Research paints a similar picture.
Analysts at Crestmont have back-tested the rolling 20-year total return, including dividends, of the S&P 500 for more than a century. Out of the 106 rolling 20-year periods examined, Crestmont found that all 106 would have produced a positive annualized total return. In other words, if an investor had, hypothetically, purchased an S&P 500 tracking index at any point from 1900 through 2005 and held it for 20 years, they would have made money every time.
Regardless of what headwinds are thrown Wall Street's way, the stock market has always, eventually, put corrections, bear markets, and short-lived crashes firmly in the rearview mirror. Even if history were to rhyme in 2026 under President Trump, the long-term outlook for the stock market remains as rosy as ever.
