Prediction: The Trump Bull Market Will Come to an Abrupt End From an Unlikely Source -- the Federal Reserve

• The FOMC has shown unprecedented division with dissenting votes in opposite directions at two of the last five meetings since October 2025, undermining trust in the central bank's cohesive monetary policy approach
• Jerome Powell's term as Fed Chair ends May 15, 2026, with Kevin Warsh nominated as replacement, raising concerns about his stated desire to reduce the Fed's $6.6 trillion balance sheet which could drive up long-term yields
• The S&P 500's Shiller Price-to-Earnings Ratio indicates the market is at its third-most expensive valuation since January 1871, leaving little margin for error amid Fed uncertainty

Market Summary: Federal Reserve Discord Threatens Trump Bull Market Rally

Key Market Performance

Through February 3, 2026, major indices have posted strong gains since Trump's January 20, 2025 inauguration: the Dow Jones up 13%, S&P 500 up 15%, and Nasdaq Composite up 18%. During Trump's first term, these indices soared 57%, 70%, and 142% respectively, ranking eighth-best among 33 presidential terms since 1897.

Bull Market Drivers

The Tax Cuts and Jobs Act (TCJA) of December 2017 permanently reduced the corporate tax rate from 35% to 21%—the lowest since 1939—driving increased stock buybacks. Trump's "America First" agenda, despite trade policy volatility, has attracted domestic business investment. Additional catalysts include hype around AI and quantum computing trends, plus better-than-expected corporate earnings.

Central Risk: Federal Reserve Discord

The Federal Open Market Committee (FOMC) has shown unprecedented division, with dissenting opinions in the last five meetings. In October and December, multiple members disagreed on rate decisions—some favoring no cuts while others pushed for aggressive reductions. Since 1990, only three FOMC meetings featured dissents in opposite directions; two occurred since late October 2025.

Fed Chair Jerome Powell's term ends May 15, 2026. Trump's nominee Kevin Warsh faces Senate confirmation uncertainty and has indicated plans to deleverage the Fed's $6.6 trillion balance sheet, potentially driving up long-term yields and mortgage costs.

Market Valuation Concern

The S&P 500's Shiller P/E Ratio indicates historic overvaluation, with current levels among the highest since January 1871, leaving minimal margin for error amid Federal Reserve instability.