The Fed Could Crush Trump’s Bull Market — Here’s the Warning Wall Street Is Missing

Markets person spent months betting that President Donald Trump’s second-term docket would widen the rally that pushed the S&P 500 to repeated highs. Tax cuts, deregulation, and assertive reshoring policies are each catnip for investors. Since Election Day, cyclical sectors similar industrials, banks, and small-cap stocks person outpaced the broader marketplace arsenic traders priced successful faster economical growth.

But what if the biggest menace to the bull marketplace isn’t tariffs, deficits, oregon geopolitics? What if the existent occupation is the Federal Reserve?

That’s the question astute investors request to commencement asking present due to the fact that the aforesaid policies fueling maturation could besides reignite ostentation -- forcing the Fed to support involvement rates higher for longer. And historically, bull markets don’t past prolonged monetary tightening forever.

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Betting connected Rate Cuts That May Never Come

Wall Street entered 2026 expecting aggregate Federal Reserve complaint cuts. According to CME FedWatch data, traders began the twelvemonth anticipating arsenic galore arsenic 4 quarter-point cuts earlier December. That optimism progressively looks misplaced.

The latest Consumer Price Index study from the Bureau of Labor Statistics showed ostentation moving astatine 3.3% twelvemonth implicit twelvemonth -- up 0.9% from February and inactive good supra the Fed’s 2% target. Core services inflation, which excludes nutrient and energy, remains sticky arsenic wage maturation continues hovering adjacent 3.5%.

Meanwhile, the system refuses to slow. The Commerce Department’s beforehand estimation for first-quarter GDP showed annualized maturation of 2%, portion the Labor Department reported unemployment adjacent 4.3%. That means consumers are inactive spending and businesses are inactive hiring.

Ordinarily, that would beryllium bully news. For the Fed, though, beardown maturation paired with stubborn ostentation creates a problem. Federal Reserve Chair Jerome Powell has repeatedly warned that complaint cuts beryllium connected “greater confidence” ostentation is cooling sustainably. So far, the information hasn’t afloat cooperated. Surprisingly, investors proceed treating little rates arsenic inevitable.