How Likely Is It That the Stock Market Crashes Under President Donald Trump in 2026? 3 Historically Accurate Correlations Weigh In.

Equity benchmarks posted strong gains under President Trump—historical first-term rallies of 57%, 70% and 142% previously, and in 2025 the Dow, S&P 500 and Nasdaq closed the year up roughly 13%, 16% and 20%, respectively—yet three historical correlations raise downside risk for 2026. The author flags that the S&P has posted three consecutive years of 15%+ gains (a pattern that preceded major drawdowns in prior episodes), the S&P's forward P/E is approaching 23 (a level Howard Marks links to muted 10-year returns between +2% and -2%), and 2026 is a U.S. midterm year when peak-to-trough corrections have averaged ~17.5%; offsetting catalysts mentioned include potential lower rates and AI-led gains, and the piece reiterates long-term historical resilience of equities.

Analysis

Market structure: The near-term winners are concentrated AI/automation leaders (NVDA explicitly) and select growth names (NFLX for secular streaming monetization) while broad-cap, high P/E index exposures are most vulnerable if sentiment flips. High forward S&P P/E ≈23 implies limited 10-year nominal returns (Howard Marks’ +2%/–2% band) and magnifies downside: a 15–20% midterm correction is historically probable and would disproportionately punish passive, unhedged exposures. Cross-assets: falling yields on a Fed pivot would boost long duration equities and REITs but compress bank NIMs; expect higher option skew, VIX spike risk, and USD volatility tied to rate differentials.

Risk assessment: Tail risks include a 15–25% midyear drawdown (historical midterm avg 17.5%; Trump first-term ~20%), AI regulatory/antitrust actions against dominant platforms, and a liquidity shock from concentrated ETF/ETF options flows. Immediate (days): elevated skew — buy protection; short term (weeks–months): price discovery around CPI/Fed guidance and midterm polling; long term (years): broad equities still likely positive if held 10+ years but with muted returns from current valuations. Hidden dependencies: corporate buyback pace, margin debt, and concentration of index returns in top 10 names.

Trade implications: Tactical: overweight NVDA (1–3% initial) and NFLX (1%) for secular upside; hedge index beta with 3–6 month SPY put spreads sized to cover 5–10% portfolio drawdown. Use pair trades (long NVDA / short SPY) to express alpha while capping market risk. Rotate 2–4% from cyclical financials/consumer discretionary into staples/healthcare and 7–10y Treasuries if CPI decelerates below 2.5% or Fed signals cuts.

Key Decisions for Investors

• Establish a 2–3% long position in NVDA (ticker NVDA) now; add another 2–3% on any pullback >15% within the next 3 months. Rationale: secular AI exposure with asymmetric upside versus broad index risk.
• Purchase cost-limited protection: buy 3–6 month SPY put spread sized to hedge 5–10% of portfolio downside (buy ~10% OTM put, sell ~20% OTM put). Target cost ≈0.3–0.8% of portfolio; deploy immediately and roll if not exercised by month 3.
• Implement a relative-value pair: long NVDA (2% notional) and short SPY (2% notional) to isolate idiosyncratic AI upside while neutralizing market beta; set stop-losses at 20% on NVDA and cover short SPY if SPY breaks down >15% (take profits if NVDA outperforms SPY by >30%).
• Reduce cyclical exposure (financials/consumer discretionary) by 2–4% and redeploy into consumer staples/healthcare (tickers XLP/VHT) and 7–10y Treasuries (buy TLT or direct 7–10y) if CPI prints two consecutive months <2.5% or Fed signals rate cuts within 90 days; re-evaluate post-midterms.
• Allocate 1–2% of portfolio to volatility tail protection (buy 3-month VIX call spreads or deep OTM SPX puts) to guard against a 15–25% intra-year correction; deploy now while skew is still relatively subdued.