President Donald Trump said in May that the Iran war should have driven the stock market down 20% to 25%, an escalation of an April forecast that put the drop at roughly 20%. Instead, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite have climbed to fresh records, even as the Fed tension and stretched valuations behind his call remain in place.
President Donald Trump's expected 20% to 25% Iran-war stock market crash hasn't shown up. The Dow Jones Industrial Average and S&P 500 climbed to fresh all-time highs last week. The Nasdaq Composite reached uncharted territory in early June. Yet the Fed tension and stretched valuations behind his forecast haven't gone away.
Trump's forecast kept climbing
Trump first raised the alarm on April 21, telling CNBC he expected the Dow and S&P 500 to fall roughly 20% because of the conflict. He then escalated the call, floating potential declines of 25% to 30% in later remarks. In Oval Office comments in May, he said: "the market would be down 20% to 25%."
The market did wobble the way he described, just not by nearly as much. The S&P 500 dropped about 8% from its pre-conflict levels, bottoming at 6,343.72 in late March, then clawed its way back to record highs by mid-2026.
Oil is doing the damage
The war began on Feb. 28, when joint U.S.-Israeli airstrikes killed Iranian Supreme Leader Ayatollah Ali Khamenei, according to Crypto Briefing. Iran then shut down the Strait of Hormuz to most commercial vessels, a closure that has held for more than five months and cut a fifth of the world's petroleum liquids from daily flow.
Brent crude surged to $118.35 a barrel by March 31, driven largely by Iran's moves to assert control over the Strait of Hormuz. That waterway carries roughly 20% of the world's oil shipments each day. Prices have since pulled back, but Crypto Briefing said oil remains the key transmission mechanism from the war to the economy. Any renewed disruption would likely send Brent back toward or beyond the $118 level it hit in March.
Inflation keeps the Fed divided
Headline inflation peaked at a three-year high of 4.2% in May, well above the Fed's 2% target, before easing back. Core PCE, which strips out food and energy, has stayed stuck at 3.3% to 3.4% — evidence the pressure has spread beyond the fuel pump.
At the July 28-29 FOMC meeting, three voting members dissented in favor of a rate hike, the first time in 56 years a Fed chair has faced three dissents this early in a tenure.
Valuations leave no margin for error
The stock market entered 2026 at its second-priciest valuation in history. The S&P 500's Shiller P/E, or CAPE ratio, neared 43 in early June — far above its 17.4 average since 1871 and just below the 44.19 reading hit in December 1999, before the dot-com bubble burst.
A CAPE ratio above 30 has occurred only six times in history. The previous five instances all preceded declines of 20% or more in the Dow, S&P 500 and Nasdaq Composite.
Sources: The Motley Fool, Crypto Briefing
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