Is the Trump Bull Market About to Crash? A Historically Accurate Measure of Risk Offers a Chilling Answer.

Although Wall Street has endured some of the wildest swings in its storied history under President Donald Trump, the iconic Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and tech-driven Nasdaq Composite (NASDAQINDEX:^IXIC) have thrived with Trump in the White House.

During Trump's first, non-consecutive term (Jan. 20, 2017-Jan. 20, 2021), the Dow, S&P 500, and Nasdaq Composite surged 57%, 70%, and 142%, respectively. Since taking office for his second term on Jan. 20, 2025, Wall Street's trio is up 19%, 28%, and 35%, respectively.

The Trump bull market has been fueled by the artificial intelligence (AI) infrastructure build-out, better-than-expected corporate earnings, and record S&P 500 share buybacks, among other catalysts. Record buybacks are a function of Trump's flagship Tax Cuts and Jobs Act (signed in December 2017), which reduced the peak marginal corporate income tax rate from 35% to 21%.

But things may not be as perfect as the Dow, S&P 500, and Nasdaq make them appear. According to one stock market measure, which has flawlessly forecast short-term directional moves in Wall Street's major stock indexes over the last three decades, the likelihood of a Trump bull market crash is climbing.

Wall Street's oft-overlooked measure of risk is sending an unmistakable warning to investors

Though several risks to the Trump bull market have been highlighted in recent weeks, including the potential for an AI bubble-bursting event and historically high stock valuations, arguably no red flag looms larger than outstanding margin debt.

Margin represents the money an investor borrows from their broker, with interest, to short-sell (wager against) or purchase securities. If margin is used to buy a stock or an exchange-traded fund (ETF), it acts as a form of leverage.

Using borrowed capital to lever your investments is risky business. If a security moves in the desired direction, you can amplify your gains, even with the interest owed to your broker. But if a security moves opposite to what you expect, margin can magnify your losses. This makes outstanding margin debt a crude but effective measure of investors' willingness to take risks.

Over the long run, we'd expect to see margin debt climb more or less in lockstep with Wall Street's major indexes. But when outstanding margin debt skyrockets over a short period, it's signaled forthcoming disaster for the stock market, without fail, over the last three decades.

Total Margin Debt hits $1.5 Trillion, a new all-time high 🤯 👀 pic.twitter.com/1IXqZGgrqs

— Barchart (@Barchart) July 20, 2026

According to FINRA, outstanding margin debt surged from nearly $851 billion in April 2025 to an all-time high of $1.502 trillion in June 2026, equating to a 77% increase in 14 months. It's only the fourth time we've witnessed margin debt jump by at least 65% over a short period:

• March 1999 to March 2000: The first significant surge in margin debt occurred during the internet boom and ended when the dot-com bubble burst. Over 12 months, margin debt leaped 80% to nearly $300 billion. Over the following two years, the S&P 500 and Nasdaq Composite lost 49% and 78% of their respective values.
• June 2006 to July 2007: Outstanding margin debt also peaked right as the financial crisis was taking shape. The roughly $416 billion in margin debt reached in July 2007 marked a 66% increase from where aggregate investor borrowing stood in June 2006. The broad-based S&P 500 plummeted 57% during the Great Recession.
• March 2020 to October 2021: Fiscal stimulus checks during the pandemic kicked investors' willingness to take risks into overdrive. Over a 19-month stretch ending in October 2021, margin debt tipped the scales at $936 billion, up 95% from the COVID-19 pandemic low. Just three months after margin debt peaked, the 2022 bear market commenced.
• April 2025 to June 2026: As noted, margin debt soared 77% in 14 months to a record high.

Although history can't guarantee the future, or a stock market crash, it has an uncanny ability to foreshadow what's to come more often than not. Parabolic moves in outstanding margin debt (i.e., risk-taking) have been universally bad news for the stock market over three decades. If investors reduce their use of margin, the Trump bull market could easily collapse under the weight of historically pricey stock valuations.

Wall Street's direst forecasts lead to some of the best opportunities for investors

Based solely on what history has shown us over the last three decades, the Trump bull market is operating on borrowed time. While Wall Street's downside catalyst remains a mystery, the meteoric rise in margin debt foreshadows disaster.

But the quirky thing about calamitous events on Wall Street is that they offer investors phenomenal opportunities to buy into great businesses (or ETFs) at bargain prices.

Though stock market corrections, bear markets, and crashes can be scary and tug on investors' heartstrings, these events all have one thing in common: they resolve quickly.

In late May, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that examined this dynamic between S&P 500 bull and bear markets. Researchers looked back 97 years, to the beginning of the Great Depression (September 1929), and found a stark contrast between optimism and pessimism on Wall Street.

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft

— Bespoke (@bespokeinvest) May 30, 2026

On the one hand, the average S&P 500 bear market has lasted only 286 calendar days, or approximately 9.5 months. To add, none of the 27 S&P 500 bear markets over the last 97 years has endured longer than 630 calendar days.

By comparison, the typical bull market has persisted about 3.6 times as long (1,023 calendar days), with 14 out of 27 S&P 500 bull markets lasting longer than the aforementioned lengthiest bear market.

Although downtrends can be scary, history consistently shows that they provide surefire buying opportunities for optimistic, long-term-minded investors.

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.