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Written by Sean Williams for The Motley Fool->
The stock market has blossomed under President Donald Trump, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite delivering outsize returns.
Investors are absolutely piling into money market funds, which is an ominous sign given that the Federal Reserve has been in a rate-easing cycle since September 2024.
The Iran war may be the straw that breaks the Trump bull market's back.
Statistically speaking, outsize stock market returns and President Donald Trump in the White House have gone hand in hand. During the president's first, non-consecutive term, he oversaw gains in the iconic Dow Jones Industrial Average (DJINDICES: ^DJI), broad-based S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) of 57%, 70%, and 142%.
Although volatility has been prevalent in Trump's second term, we've witnessed an encore performance from equities. Since his inauguration on Jan. 20, 2025, the Dow, S&P 500, and Nasdaq have rallied 13%, 20%, and 28%, respectively, through the closing bell on May 4, 2026.
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President Trump delivering a speech. Image source: Official White House Photo by Daniel Torok.
Not every aspect of the Trump bull market has his fingerprints on it. For instance, the evolution of artificial intelligence (AI) and the advent of quantum computing were underway before Trump took office for his second term. However, the permanent corporate income tax reduction that was passed along in Trump's flagship Tax Cuts and Jobs Act has led to record S&P 500 share buybacks.
While it would appear that nothing can stop the Trump bull market, following the money offers a different take.
Amid the AI revolution, the rise of quantum computing, and more than an estimated $1 trillion in share repurchases by S&P 500 companies in 2025, we've watched the total financial assets held in money market funds ascend to the heavens.
Money market funds are a type of mutual fund that invests in super-safe assets, such as short-term Treasury bills, municipal bonds, and certificates of deposit (CDs). Investors typically flock to money market funds to generate income amid periods of instability and uncertainty.
For example, capital began streaming into money market funds shortly after the Federal Reserve kicked off its most aggressive rate-hiking cycle in decades in 2022. Between March 2022 and July 2023, the Federal Open Market Committee (FOMC) increased the federal funds target rate by 525 basis points to stymie rapidly rising inflation. In the process, the FOMC's actions sent the yields on fixed-income securities soaring.
In other words, the FOMC's actions incentivized some investors to shift away from stocks toward the higher yields and/or safety of T-bills, muni bonds, and CDs.
$8.2 Trillion is now sitting in money market funds, an all-time high 🚨🤑 pic.twitter.com/Tur4JqmTLK
But here's where things get interesting. Between September 2024 and December 2025, the FOMC lowered the federal funds target rate on six occasions. Reducing borrowing costs is intended to stimulate economic growth. It also lowers yields on fixed-income securities.
The FOMC's actions should (keyword!) have led to an outflow from money market funds toward higher-return (but riskier) assets, such as stocks. However, inflows into money market funds have only accelerated. Between the end of 2022 and the close of 2025, total financial assets held in money market funds have ballooned from $5.22 trillion to $8.19 trillion. In other words, even as the returns in T-bills, muni bonds, and CDs have declined, investors have continued to pile in.
If you follow the money, investors are signaling through their actions that the Trump bull market is running on fumes and appears destined to topple sooner rather than later.
At the moment, several headwinds are threatening to send the stock market over the edge.
One reason that might explain the exodus to money market funds is the historical priciness of the stock market. According to the S&P 500's Shiller Price-to-Earnings (P/E) Ratio (also known as the Cyclically Adjusted P/E Ratio, or CAPE Ratio), the stock market entered the year at a multiple above 40.
Historically, a Shiller P/E Ratio above 30 has proved unsustainable over the long term and has foreshadowed a significant decline in stocks. The five previous times the CAPE Ratio exceeded 30 were all eventually followed by declines in the Dow, S&P 500, and/or Nasdaq Composite of at least 20%, if not substantially more.
Shiller PE Ratio hits 2nd highest level of all-time, only slightly behind the Dot Com Bubble 🚨🚨🚨 pic.twitter.com/Se55FZmnbZ
The introduction of President Trump's tariff and trade policy also coincides with a significant increase in inflows into money market funds. Though a Supreme Court ruling ultimately changed Trump's tariffs and the duties imposed, we've certainly witnessed production costs rise for some U.S. manufacturers.
A December 2024 analysis by four New York Federal Reserve economists writing for Liberty Street Economics found that Trump's China tariffs in 2018-2019 had lasting negative effects on businesses. From 2019 to 2021, the average public company affected by Trump's China tariffs saw declines in employment, labor productivity, sales, and profits.
But the tipping point for the Trump bull market might be the Iran war.
On Feb. 28, U.S. military forces, at Trump's command, commenced attacks against Iran. Shortly after this conflict began, Iran closed the Strait of Hormuz to virtually all commercial vessels. Approximately 20% of the world's global demand for liquid petroleum passes through the Strait of Hormuz daily. Thus, Trump's actions have led to the largest energy supply disruption in modern history.
Average U.S. gas prices per gallon on April 30, per AAA:• Regular: $4.30 (⬆️ $1.32 since war in Iran began on Feb. 28) • Premium: $5.16 (⬆️ $1.30 since war began)• Diesel: $5.50 (⬆️ $1.74 since war began)
The reaction in energy markets has been swift. Gas prices have jumped at their quickest pace in over 30 years, with diesel prices climbing even faster. The Federal Reserve's inflation outlook for April and May continues to worsen, which is terrible news for an expensive stock market.
Investors had been counting on several interest rate cuts in 2026-2027 to fuel the Trump bull market rally. But with rate cuts effectively off the table, supporting a historically pricey stock market may be impossible.
If you follow the money, you'll find a stock market that appears to be running on fumes with no fuel in sight.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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