The US stock market has experienced a significant upswing under President Trump, with the S&P 500 achieving a total return of over 30% since the November 5, 2026, presidential election. This growth, observed through July 21, 2026, has been marked by notable volatility, including a sharp nearly 20% decline in early 2026. However, the market has rebounded robustly, driven by strong economic performance and corporate profits that exceeded many investors’ expectations.
Despite the fluctuations, investors have remained focused on the fundamental strength of the market, particularly the growth in corporate earnings. This resilience has been supported by broad-based consumer spending and substantial business investment, including in cutting-edge sectors like artificial intelligence. However, the market’s trajectory could be influenced by various factors, including geopolitical conflicts, tariffs, inflation, Federal Reserve policy, and federal deficits, which could potentially weaken demand, investment, or profit margins.
The Role of Corporate Earnings in Market Growth
The performance of the stock market under President Trump can be largely attributed to the robust growth in corporate profits. In the first quarter, S&P 500 revenues increased by 12% year-over-year, slightly surpassing initial expectations of 10% growth. Earnings saw an even more impressive surge, rising by 28%, more than double the forecast at the start of the reporting season. Analysts anticipate this strength to continue into the second quarter, with projected revenue growth of approximately 12% and earnings growth of 23%. This earnings growth has been a critical factor in supporting the market’s advance, providing a solid foundation for stock prices.
Stock prices are ultimately driven by company earnings, which are influenced by consumer spending and business investment. These factors generate revenue, while productivity and cost control affect profit margins. When revenues and margins grow, earnings rise, providing fundamental support for stock prices. The current market advance has been more about earnings growth than investors paying higher prices for the same profits, indicating a healthy underlying economic environment.
Consumer Spending: A Pillar of Economic Strength
Consumer spending has been a major driver of earnings and stock market growth under President Trump. In May, US consumer spending rose by 6.3% compared to the previous year, according to the Bureau of Economic Analysis. This trend has been consistent across various measures, including Johnson Redbook’s weekly retail-sales data and Fiserv’s point-of-sale transaction information, which showed spending growth in the range of 6% to 8%.
While not all consumers share the same experience, higher-income households have been particularly active in spending on travel, dining, and other discretionary purchases, supported by rising asset values. Middle-income households remain engaged but have become more selective, while lower-income households face greater pressure from higher costs of food, fuel, and borrowing. Despite these disparities, aggregate consumer spending remains crucial for economic activity, accounting for approximately two-thirds of US economic output. This spending supports revenues across various industries, from retailers and restaurants to travel providers, financial institutions, and manufacturers.
Business Investment: Beyond Artificial Intelligence
Business investment has also played a pivotal role in supporting the economy and corporate earnings. Capital spending among S&P 500 companies grew by approximately 20% year-over-year, reflecting investments in property, plants, equipment, technology, and other productive assets. While artificial intelligence has been a fast-growing component of this spending, it is not the sole focus. Companies are also investing in factories, industrial equipment, power generation, grid capacity, software, and supply chain infrastructure. The trend of reshoring, which involves moving production closer to the United States, and the broader shift toward electrification have further driven demand for physical capacity. This investment spans technology, industrial, energy, utility, and service companies, indicating a diverse and robust economic environment.
Business investment affects economic activity in two ways: it creates current demand by generating revenue for other companies and supports jobs throughout the supply chain. Additionally, it can enhance capacity or improve productivity, potentially supporting future revenue, profit margins, and earnings growth. The One Big Beautiful Bill Act (OBBBA) has also provided support for investment by improving the after-tax economics of capital investment. However, this legislation has contributed to the federal debt debate, with the Congressional Budget Office estimating a $3.4 trillion increase in federal debt over the next decade. Investors must weigh the near-term benefits of household income and business investment against the potential long-term impact on interest rates.
Challenges on the Horizon
Several factors could pose challenges to the continued growth of the stock market. Geopolitical conflicts, particularly those affecting energy supplies, trade routes, or transportation, could disrupt economic activity. The Iran conflict, for instance, has drawn attention due to the significant volume of oil passing through the Strait of Hormuz. While the United States is better positioned than many energy-importing economies, sustained global energy price increases could impact both consumer spending and business activity. Higher energy prices can reduce disposable income for households and squeeze profit margins for businesses, potentially slowing growth and influencing inflation and interest rates.
Inflation and Federal Reserve policy also play crucial roles in shaping the economic landscape. After rising earlier in the year due to increased energy costs, inflation showed signs of improvement in June, with consumer prices rising by 3.5% year-over-year, down from 4.2% in May. Core inflation, which excludes volatile food and energy prices, slowed to 2.6%. However, it still exceeds the Fed’s 2% long-term goal, creating uncertainty about the path for interest rates. New Fed Chair Kevin Warsh has signaled a focus on inflation, which may provide less certainty about future rate changes. Markets will closely monitor inflation, employment, and economic growth data to assess the Fed’s next moves.
Tariffs remain another variable in the market equation. They can affect the cost of imported materials and finished goods, influence supply chain decisions, and impact consumer prices. The economic effect depends on the tariff rate, the products covered, and how much of the additional cost businesses absorb. The Supreme Court voided most tariffs imposed in 2026 under one legal authority, and the administration has since announced a temporary 10% global tariff while exploring other options. Investors are more focused on the broader impact of these policies on demand, inflation, company margins, and earnings rather than individual announcements.
Federal deficits also present a longer-term interest-rate risk. With federal debt totaling approximately $39.2 trillion, investors assess the government’s income, its ability to service existing debt, and the economy’s capacity to generate future growth and tax revenue. Large and persistent deficits create trade-offs, as interest expense competes with other federal priorities. Rising borrowing needs could eventually require higher yields to attract enough Treasury buyers, potentially raising borrowing costs across the economy and reducing the valuation investors place on stocks.
