Federal Reserve Rate Hikes Threaten Trump's Economy and AI-Driven Bull Market
The stock market has enjoyed higher returns under President Donald Trump's presidency compared to most other presidents since the late 1890s. The AI infrastructure build-out has been a primary driver of these gains, particularly in the areas of graphics processing units and high-bandwidth memory.
A new threat has emerged that could upend this bull market: the Federal Reserve's rate-hiking cycle. Rate hikes can have a significant impact on stocks, squashing the catalyst behind corporate earnings growth.
The AI-driven bull market is fueled by insatiable demand and persistent supply shortages, leading to exceptional pricing power for companies like Nvidia and Micron Technology. However, with the Federal Reserve increasing interest rates, businesses may slow down their expansion, which could be dire for the stock market.
The stock market entered 2026 at its second-priciest valuation over nearly 156 years, making it arguably priced for perfection. If rate hikes lead to slower AI growth rates and/or a re-rating of premium stock valuations, it could mark an abrupt end to the AI-driven bull market.