On May 22, the Federal Reserve entered a new era, with President Donald Trump's handpicked successor to Jerome Powell, Kevin Warsh, sworn in as the 17th Fed chair. It also marked a period of uncertainty amid this transition for the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC).

Warsh has wasted little time setting a new tone as head of the central bank. He's done away with forward-looking guidance in Federal Open Market Committee (FOMC) meeting statements and declared "the Fed's predominant focus right now should be on prices."

Fed Chair Kevin Warsh has declared that the FOMC will deliver price stability. Image source: Official Federal Reserve Photo.

Though FOMC policymakers are bound to uphold the dual mandate of maximum employment and price stability, the latter is of far greater importance at the moment. Trailing 12-month inflation reached a three-year high of 4.2% in May, driven primarily by Trumpflation vis-à-vis tariffs and the Iran war.

According to the CME Group's (NASDAQ:CME) proprietary FedWatch Tool, the odds are 50-50 that the FOMC hikes interest rates at its Sept. 15-16 meeting. While a rate hike would signal a direct approach to tackling above-average inflation, more than three decades of history says it could rattle stocks.

The stock market initially reacts poorly to Fed rate hikes, but perspective is everything

Since the start of 1990, the central bank has undertaken six rate-hiking cycles, with an average of 4.4 years between each cycle. According to data aggregated by Carson Investment Research and published on X (formerly Twitter) by Carson Group's Chief Market Strategist, Ryan Detrick, the initial stock market reaction after the first Fed rate hike was poor.

Over the last 36 years, the five quarter-point rate hikes undertaken by the central bank led to S&P 500 losses one month later 100% of the time. After three months, the benchmark index was lower 80% of the time, with an average decline of 2.7%.

The FOMC has only hiked by 50 basis points as its initial move once since 1990, and it was followed by double-digit percentage declines for the S&P 500 at the three-, six-, and 12-month marks.

The Fed hasn't hiked in more than three years and they could in two weeks.

That first hike isn't always a bad thing, but size appears to matter.

When the Fed hikes 0.25%, stocks still see early weakness, but never lower a year later.

A 0.50% hike to start things off and all… pic.twitter.com/6zj4W04VQJ

— Ryan Detrick, CMT (@RyanDetrick) September 3, 2026

There's clear concern that a Fed rate hike can derail Wall Street's artificial intelligence (AI)-driven rally. If it becomes more expensive to borrow capital, the partially debt-financed AI infrastructure build-out could slow, adversely affecting growth rates and exposing nosebleed AI stock valuations.

But the performance of stocks after an initial Fed rate hike truly depends on investors' perspective. While Detrick's data set shows that stocks react poorly initially, the S&P 500 was higher 100% of the time by an average of 12.5% one year after each quarter-point interest rate hike.

It's not uncommon for rate-hiking cycles to begin during periods of outsize economic growth. While investors often worry about the effects of rate hikes on Wall Street's leading businesses, they're essentially missing the forest (broad-based economic growth) for the trees (the potential for higher lending rates to slow growth for select companies).

If Fed Chair Kevin Warsh announces that he and the FOMC raised the federal funds target rate on Sept. 16, don't be surprised if stocks react negatively for the first couple of weeks, then bounce back with a vengeance.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

For the nearly 55 million retired workers who took home a Social Security benefit in July, there are few, if any, announcements more anticipated than the annual cost-of-living adjustment (COLA) reveal in October. A quarter-century of Gallup surveys shows that 80% to 90% of retirees rely on their Social Security income, in some capacity, to make ends meet.

Social Security's COLA is essentially a "raise" given to beneficiaries annually to offset the effects of inflation. For instance, if a broad basket of goods and services regularly purchased by seniors increases in cost by 2% from the previous year, Social Security benefits would need to rise by the same percentage to avoid a loss of buying power.

Social Security's 2027 COLA is setting up as something of a good news/bad news event. While tens of millions of retirees should enjoy their first silver lining since 2023, courtesy of a "Trump bump," there's a potentially steep price to pay for these individuals and Social Security as a whole.

President Trump's policies are having diverging impacts on Social Security. Image source: Official White House Photo by Molly Riley.

A historic Trump bump should lead to a rare victory for tens of millions of retirees in 2027

The concept of a Trump bump -- a boost in benefits caused by one (or more) of President Donald Trump's policies -- is nothing new to Social Security beneficiaries. While a modest level of inflation is perfectly normal in an expanding economy, Trump's tariff and trade policy gave the prevailing inflation rate a boost last year.

In early April 2025, the president unveiled his Liberation Day tariffs, consisting of sweeping global tariffs and higher reciprocal tariffs on dozens of countries. Even though the U.S. Supreme Court struck down these tariffs in February 2026, the lift they provided on consumer prices last year translated into a modestly higher COLA for Social Security recipients in 2026.

Two of Trump's policies will contribute to a second consecutive year with a Trump bump in 2027.

BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.

Core PCE inflation was 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2.0% target.

Own assets or be left…

— The Kobeissi Letter (@KobeissiLetter) August 26, 2026

For starters, the Trump administration reimposed sweeping tariffs on more than 80 countries in July. Adding duties to unfinished imported goods can increase domestic manufacturing costs, which are then passed on to consumers. In other words, tariffs are leading to modestly higher consumer prices and should bump up next year's Social Security raise.

The other policy contributing to Social Security's 2027 Trump bump is the Iran war. Shortly after the president approved military attacks on Iran, the latter shut down the Strait of Hormuz to virtually all commercial vessels. This action sent fuel prices soaring. More recently, we've witnessed evidence that Iran-war-driven inflation has reached the broader economy.

The Senior Citizens League, a nonpartisan senior advocacy group, estimates Social Security's 2027 COLA will be 3.6%. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson anticipates a Social Security raise of 3.4% for the upcoming year.

The average of these two estimates, 3.5%, is particularly significant for the tens of millions of beneficiaries currently enrolled in traditional Medicare.

BREAKING: 71 million Social Security beneficiaries will see a 2.8% cost-of-living adjustment (COLA) beginning in January 2026. The average annual increase over the last decade: 3.1%.https://t.co/l5IYmkf6Ih pic.twitter.com/pgqtPLgqMB

— Charlie Bilello (@charliebilello) October 24, 2025

Since the start of this century, it's been commonplace for Medicare's monthly Part B premium -- Part B is the segment of traditional Medicare responsible for outpatient services -- to rise at a considerably faster pace than Social Security's COLA. For instance, while Social Security benefits grew by 3.2% (2024), 2.5% (2025), and 2.8% (2026), Medicare's monthly Part B premium jumped by 5.9% (2024), 5.9% (2025), and 9.7% (2026), respectively.

This dynamic of a larger percentage increase in the monthly Part B premium relative to Social Security's COLA means beneficiaries are losing some or all of their annual Social Security raise.

Next year should be different. The 2026 Medicare Trustees Report predicts the standard Part B premium will climb by a modest 3.25% to $209.50/month. For the first time since 2023, Social Security's COLA is estimated to be higher (on a percentage basis) than the projected increase in Part B. This silver lining should allow tens of millions of retirees to retain more of next year's cost-of-living adjustment.

Image source: Getty Images.

Social Security's rare silver lining comes at a steep cost to the program

Unfortunately, this expected victory comes at a potentially steep cost to Social Security and its current/future beneficiaries.

The primary reason Social Security's 2027 COLA is projected to come in higher than the estimated Part B premium increase is President Trump's aforementioned policies. In short, this is all due to a second consecutive year with a Trump bump. While a beefier monthly benefit is something most recipients will enjoy, it's terrible news for America's leading retirement program.

For four decades, the annually published Social Security Board of Trustees Report has warned of a long-term (75-year) unfunded obligation for the program. In plain English, income collected in the 75 years following the publishing of an annual report is expected to be insufficient to cover outlays.

But what's far more concerning is the impending depletion of the Old-Age and Survivors Insurance trust fund's (OASI) asset reserves -- i.e., the excess income collected since inception that's been invested in special-issue, interest-bearing government bonds, as the law requires.

US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts

The OASI is forecast to exhaust its asset reserves in the fourth quarter of 2032. Although the OASI doesn't need a penny in its asset reserves to continue making monthly payments to retired workers and survivor beneficiaries, the depletion of these reserves would necessitate sweeping benefit cuts estimated at 22%.

The Trustees Report models relatively modest Social Security raises into its short- and long-term forecasts. A projected Trump bump of 3.5% is well above average and would represent a tie for the seventh-largest percentage increase since 1992.

While tens of millions of Social Security recipients are set to benefit from a rare silver lining in 2027, the entire program could suffer from the OASI's asset reserves being drained even faster by an outsize Social Security raise. A second consecutive year with a Trump bump can shorten the timeline to sweeping benefit cuts.

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Look up the word "resilient" in the dictionary, and you're liable to see a picture of the U.S. stock market.

Despite a litany of concerns, including above-average inflation, the Iran war, President Donald Trump's tariffs, and long-duration Treasury bond yields reaching their highest level since the financial crisis, the iconic Dow Jones Industrial Average (DJINDICES:^DJI), broad-based S&P 500 (SNPINDEX:^GSPC), and growth-focused Nasdaq Composite (NASDAQINDEX:^IXIC) have all catapulted to several record highs this year.

While the stock market has made a habit of climbing this proverbial wall of worry and blasting to new highs over the long run, we also know that bull markets aren't indefinite. The stock market is cyclical, with corrections, bear markets, and even pesky crashes representing the price of admission for one of the world's greatest wealth creators.

Image source: Getty Images.

Although past events can never guarantee the future, some aspects of history have an uncanny ability to forecast what's to come. Currently, we're witnessing the stock market do something that's only been observed one other time since the early 1870s. Based on what history tells us, this signal foreshadows a coming disaster for Wall Street.

The stock market is making dubious history

While several historical warnings stand out at the moment, perhaps none is more glaring than stock valuations.

Valuing individual companies or the broader market is a really tricky subject to tackle because there's no one-size-fits-all way to evaluate every business. Invariably, emotions and/or subjectivity will play a role in the valuation process, making it incredibly difficult to forecast short-term directional moves in individual stocks or the broader market with any sustained accuracy.

But there is one valuation tool, introduced by economists in the late 1980s, that provides investors with the closest thing they'll find to an apples-to-apples valuation comparison on Wall Street. This tool, which does a phenomenal job of moving beyond emotion and subjectivity, is the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio).

What truly differentiates the Shiller P/E Ratio from the time-tested P/E ratio is the scope of earnings history examined by each valuation tool. Whereas the latter accounts for just trailing 12-month earnings, and can therefore be tripped up by recessions if earnings per share (EPS) turn negative, the Shiller P/E is based on average inflation-adjusted EPS over the trailing decade. Incorporating 10 years of EPS history provides useful valuation comparisons that recessions won't skew.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt

— Barchart (@Barchart) July 11, 2026

The CAPE Ratio has been backtested to January 1871, providing nearly 156 years of historical valuation data. Over that time, it's averaged a multiple of 17.4. But as of the close of trading on Aug. 31, the CAPE Ratio clocked in at 42.04, which is not too far below its current bull market high of 42.84, achieved on June 1, and its all-time high of 44.19 in December 1999.

Spanning nearly 156 years, the S&P 500's Shiller P/E Ratio has topped 40 on three occasions, including the present. However, one of these instances lasted just a couple of trading sessions during the first week of January in 2022. What we're witnessing now is just the second time in almost 156 years that the Shiller P/E Ratio has exceeded 40 for more than a month.

The last time the CAPE Ratio topped 40 for an extended period was between January 1999 and September 2000. For context, March 2000 marked the official bursting of the dot-com bubble. After this bubble-bursting event, the benchmark S&P 500 and innovation-driven Nasdaq Composite lost 49% and 78% of their values, respectively.

Even the aforementioned January 2022 incident, in which the Shiller P/E Ratio spent mere days above 40, was immediately followed by a nine-month-long bear market. During the 2022 bear market, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite shed approximately 20%, 25%, and 33% of their values.

History says that ultra-premium valuations aren't sustainable and eventually lead to significant bear markets on Wall Street. While the S&P 500's Shiller P/E offers no assistance in pinpointing when the stock market will top, nearly 156 years of history speak volumes.

Image source: Getty Images.

Time in the market consistently trumps trying to time short-term directional moves

While the history-based forecast for stocks is downright ugly, at least in the short run, the story changes drastically when investors take a step back and widen their lens.

As noted, stock market corrections, bear markets, and elevator-down events are akin to the price of admission on Wall Street. Investing is cyclical, and downturns are bound to happen.

But just because the stock market is cyclical and downturns are inevitable, it doesn't mean corrections and bear markets are mirror images of bull markets on Wall Street. When investors examine the bigger picture, they'll realize how valuable time in the market is compared to trying to time stock market downturns.

A little over three months ago, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that calculated the length of every S&P 500 bull and bear market since the start of the Great Depression in September 1929.

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft

— Bespoke (@bespokeinvest) May 30, 2026

Bespoke found that the average S&P 500 bear market reached its trough in 286 calendar days, or roughly 9.5 months. Meanwhile, the typical bull market has lasted 1,023 calendar days, or nearly 3.6 times as long.

A separate analysis from Crestmont Research took things a step further by examining the rolling 20-year total returns, including dividends, of the S&P 500 since the start of the 20th century. Even though the S&P wasn't officially incepted until 1923, researchers were able to track the total returns of its components in other major indexes back to 1900.

Crestmont's data set yielded 107 rolling 20-year periods (1900-1919, 1901-1920, and so on through 2006-2025), all of which produced a positive annualized total return. In other words, no matter how dire things appeared on Wall Street, the S&P 500 was higher after 20 years, including dividends, every time!

If history is correct in foreshadowing a significant bear market decline for equities, consider it the ideal opportunity for long-term optimists to pounce. Even the direst warnings on Wall Street offer a silver lining.

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.

Over the last 130 years, stock market gains have been common under most presidents. However, the annualized returns of the timeless Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and innovation-inspired Nasdaq Composite (NASDAQINDEX:^IXIC) have been higher under Donald Trump than under most presidents since the late 1890s.

While President Trump has plenty to boast about concerning stock market gains, it's a completely different story on the inflation front. Trump has been hypercritical of the Federal Reserve's stance on interest rates and firmly believes the U.S. "should have the lowest interest rates anywhere in the world."

But there's a problem: Trumpflation (inflation specifically driven by Donald Trump's policies) and the artificial intelligence (AI) revolution have made it impossible for the central bank to lower interest rates.

President Trump's own policies remove rate cuts as an option. Image source: Official White House Photo by Joyce N. Boghosian.

President Trump believes the U.S. growth rate could reach 20%

Disagreements between the president and former Fed Chair Jerome Powell over interest rates were a common theme after Trump's January 2025 inauguration.

In the lead-up to the end of Powell's second term as Fed chair, Trump frequently chastised Powell and the Federal Open Market Committee (FOMC) for moving too slowly in cutting interest rates. For context, the Powell-led Fed lowered the federal funds target rate six times between September 2024 and December 2025 to its current range of 3.50%-3.75%.

However, President Trump has previously opined that interest rates should be 1% or lower. In Oval Office commentary with reporters, the president proclaimed that "success in growth does not cause inflation," and "we could have a GDP of 14%, 15%, 16%, and 20%" if the nation's central bank were to slash interest rates.

🚨 JUST IN: President Trump says US GDP growth could be up to +20% PERCENT if the Fed just got out of the way

"We could have a GDP of 14, 15, 16 and 20. But every time you do well, we just announced great numbers and so now they're talking about raising interest rates, it's… pic.twitter.com/9cvvoeUrjE

— Eric Daugherty (@EricLDaugh) August 31, 2026

In response to a reporter's query about the FOMC possibly raising interest rates in an upcoming meeting, Trump jabbed, "In the old days... if we announced good [economic] numbers, interest rates went down. Now, if you announce good numbers, interest rates go up because they're so afraid of inflation."

Lower lending rates would certainly be viewed as positive for economic growth. If businesses could borrow at a lower cost, the expectation would be increased hiring and more capital spent on innovation. Specifically, lower interest could fuel the partially debt-financed AI data center build-out.

Perhaps more importantly, lower interest rates would make it considerably easier for the U.S. to service its more than $40 trillion in total debt.

It's a utopian vision by the president, but one that's unfortunately impossible due to the effects of Trumpflation and the AI infrastructure build-out.

Image source: Getty Images.

Trumpflation and the AI revolution are entrenched in the broader economy

While a modest level of inflation is perfectly normal in an expanding economy, two of President Trump's policies -- tariffs and the Iran war -- are providing an added boost to the prevailing inflation rate.

Although Donald Trump's Liberation Day tariffs, unveiled on April 2, 2025, were ultimately invalidated by a February 2026 U.S. Supreme Court ruling, it hasn't stopped the Trump administration from reimposing sweeping global tariffs using different justifications. In July 2026, the president's administration announced a 10% to 12.5% tariff on select imports from more than 80 countries.

The inflationary concern with tariffs is that adding duties to unfinished goods (e.g., steel) can increase domestic manufacturing costs. These higher expenses are often passed on to consumers, leading to persistently higher inflation.

However, the Iran war is a much larger contributor to America's well-above-average inflation rate at the moment. Not long after President Trump green-lit military operations against Iran, the latter closed the Strait of Hormuz to most commercial maritime traffic. This action essentially halted the daily flow of a fifth of the world's petroleum liquids.

BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.

Core PCE inflation was 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2.0% target.

Own assets or be left…

— The Kobeissi Letter (@KobeissiLetter) August 26, 2026

But the Iran war isn't just an energy supply issue any longer. The price stickiness of Core Personal Consumption Expenditures, which excludes volatile food and energy costs, serves as evidence that Iran-war-driven inflation has reached the broader economy. Businesses are paying more to alter their supply chains, reroute shipments, and purchase petroleum-based products, such as plastics. These higher costs are working their way down to consumers and boosting prices.

However, it's not solely Trumpflation that's driving the prevailing inflation rate higher.

As noted, Trump firmly believes that "success in growth does not cause inflation." But this statement holds true only when the supply of goods and services is available to meet demand. The AI infrastructure build-out is a textbook story of a supply and-demand mismatch. Demand for AI hardware vastly outstrips supply, giving infrastructure providers otherworldly pricing power. The FOMC has noted that these higher prices are working their way down the line to consumers.

The inflationary effects of President Trump's tariffs, the Iran war, and the AI infrastructure build-out are entrenched in the broader economy. Combatting the effects of entrenched inflation on consumer prices is challenging and will likely force Fed Chair Kevin Warsh and the FOMC into action.

Raising interest rates to tame Trumpflation and supercharged AI infrastructure pricing power is unlikely to go over well with President Trump or Wall Street. Though a rate-hiking cycle is likely seen as a necessary evil to avoid something worse happening, higher lending rates risk slowing the AI data center build-out. If growth rates taper, even modestly, for the second-priciest stock market in history, it could spell the end of Wall Street's historic four-year bull market.

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.

This has been a history-packed year for Wall Street, with the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) romping to new highs, and the largest-ever initial public offering taking shape. But the swearing in of Fed Chair Kevin Warsh on May 22 arguably takes the cake.

Jerome Powell's successor vowed to lead a reform-oriented central bank and hasn't veered from that promise over the last three months. Since taking the reins, Warsh has shelved forward-looking guidance from Federal Open Market Committee (FOMC) meeting statements and commissioned five task forces to aid the Fed in its conduct of monetary policy.

Fed Chair Warsh just served up an inflation ultimatum for Wall Street. Image source: Official Federal Reserve Photo.

But the biggest task at hand for Warsh and the FOMC is tackling persistently high inflation. While delivering his first annual speech at the Jackson Hole economic symposium on Aug. 28, the new Fed chair completely shifted the central bank's entire focus on inflation in one sentence.

Kevin Warsh just flipped the script on inflation

Aside from several reforms, the most consistent message of Warsh's early tenure has been that the Fed would "deliver price stability." Warsh and his colleagues recognize that the prevailing inflation rate is well above the Fed's long-term 2% target and has been above this line in the sand for 65 months (and counting).

Between the June 17 and July 29 FOMC meetings, the head of the Fed pointed out that a sizable increase in long-duration Treasury bond yields had effectively done some of the work for the central bank. Higher bond yields at the long end of the yield curve can raise borrowing costs and temper above-average inflation.

However, Fed Chair Kevin Warsh made clear at Jackson Hole that the Fed's primary focus is on prices. More specifically, he outlined the importance that inflation not only decline to the FOMC's long-term target, but that it does so in a timely manner:

Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.

It's the addition of "at sufficient speed" that really shifts the Fed's inflation focus away from simply being satisfied with month-over-month declines and demanding that prices moderate to acceptable levels rather quickly. This one sentence from Fed Chair Warsh leaves the door wide open for rate hikes, even if the prevailing inflation rate declines.

Fed Chair Warsh at Jackson Hole: “There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank.”

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient… pic.twitter.com/RahyDfb8dZ

— Lark Davis (@LarkDavis) August 29, 2026

Warsh's statement also puts a historically expensive, artificial intelligence (AI)-driven stock market on notice.

The AI infrastructure build-out has been the undeniable top catalyst for Wall Street, with debt, in part, financing this expansion. If lending costs rise and businesses slow their rate of data center expansion even marginally, it could lead to a rerating of growth rates and put historically unsustainable AI stock valuations under a microscope.

Tackling persistently high inflation may be necessary, given mounting evidence that Iran-war-driven inflation is entrenched in the U.S. economy. But delivering on the Fed chair's promise "at sufficient speed" threatens to upend one of the strongest bull markets on record.

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.

Since the late 1890s, roughly three-quarters of all presidential terms have ended with the stock market delivering gains. But under President Donald Trump, the annualized returns of the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) have been higher than under most other presidents.

While a significant chunk of these gains traces to the evolution of artificial intelligence and has little to do with the goings-on in Washington, D.C., fiscal policy changes implemented on Capitol Hill can impact business growth rates and the stock market. This places the spotlight squarely on the Nov. 3 midterm elections.

For the first two years of President Trump's non-consecutive second term, he'll have enjoyed a unified government, with Republicans controlling a majority of seats in both houses of Congress. But this ideal scenario for the president may be about to change.

President Trump's unified government is at risk of disruption on Nov. 3. Image source: Official White House Photo.

In the 20 midterm elections since the end of World War II, the party that holds the White House has lost seats in the House of Representatives 18 times. Similar losses were noted in the Senate, albeit not to the same degree as the House.

Could a stock market plunge await if Donald Trump's unified government is disrupted by Election Night losses? Nearly a century of historical return data provides a pretty clear answer.

Prediction markets are forecasting a divided Congress under President Trump

As of this writing at the beginning of September, Republicans hold a majority of seats (53 of 100) in the U.S. Senate and a very slim majority in the House (218 of 435 seats). According to prediction markets, neither majority is considered safe for Trump's party come Nov. 3.

In the early morning hours on Sept. 1, Polymarket traders forecast a 51% chance of a Democratic sweep on Election Night, with another 36% projecting that Democrats will take control of the House while Republicans retain the Senate. Only one-eighth of bettors on Polymarket's platform believe Republicans will maintain their unified government.

BREAKING: Markets now expect the Democrats to sweep both the House and Senate in the 2026 midterm elections.

Less than one year ago, Democrats had just a 20% chance of sweeping the midterms.

Election day is 63 days away. pic.twitter.com/MKXR0EkB0u

— The Kobeissi Letter (@KobeissiLetter) September 1, 2026

Sitting presidents prefer a unified government because it's often easier to pass major legislation. During the first year of Trump's first term, he and Congress passed the Tax Cuts and Jobs Act (TCJA), which permanently lowered the peak marginal corporate income tax rate from 35% to 21% and reduced the personal income tax brackets for a majority of working Americans. The TCJA has been instrumental in fueling record share buybacks.

A unified government also aided Trump in passing his second major piece of tax and spending legislation in the first year of his second term. The "Big, Beautiful Bill" made the TCJA's personal tax bracket reductions permanent, as well as introduced a bevy of temporary tax breaks from calendar years 2025 through 2028.

If Democrats were to retake one or both houses of Congress, it would make it virtually impossible for President Trump to pass major tax and spending legislation. Furthermore, it would almost certainly make debt-ceiling negotiations more challenging, potentially leading to federal government shutdowns.

But the million-dollar question for investors is: What happens to stocks when a Republican president oversees a split Congress?

Don't shoot the messenger here, but the party in the White House has lost seats in 20 of the past 23 midterms. pic.twitter.com/KyUAAlNlJs

— Ryan Detrick, CMT (@RyanDetrick) January 21, 2026

According to Mike Patton, the president of Integrity Wealth Management and a Forbes columnist, a split Congress works out nicely for investors. Between 1946 and 2020, the average annual return for the timeless Dow Jones Industrial Average when the leadership of Congress was split between Democrats and Republicans was a hearty 12.9%!

However, Retirement Researcher took things one step further by examining these returns based on the party affiliation of the sitting president. Interestingly, the 13 years between 1926 and 2023 in which Republicans held a unified government yielded an average annual return of 14.52% for the benchmark S&P 500.

In comparison, the 34 years that featured a Republican president and a divided government (meaning one or both houses of Congress controlled by Democrats) yielded an average annual return of just 7.33% for the S&P 500. While there's no indication that stocks will plunge if Election Night produces a split Congress, nearly a century of history shows that more modest stock returns should be expected in its wake.

Image source: Getty Images.

Stocks thrive, regardless of the party in power

At any given time, several catalysts threaten to upend the stock market, such as rapidly rising outstanding margin debt and premium valuations. From time to time, these headwinds can lead to stock market corrections and even a short-lived plunge. The makeup of Congress is rarely, if ever, responsible for these elevator-down moves.

While historical data shows that certain congressional makeups are more favorable than others, the average annual return of the Dow Jones Industrial Average or S&P 500 is decisively positive, no matter how the puzzle pieces are arranged. Regardless of whether Republicans retain a unified government, Democrats sweep both houses of Congress, or Democrats and Republicans split Congress, history says stocks can head higher.

Data from analysts at Crestmont Research demonstrates the importance of looking beyond the noise, including midterm elections, and remaining invested over long periods.

^SPX data by YCharts

Every year, Crestmont updates a data set that examines the annualized rolling 20-year total returns, including dividends, of the benchmark S&P 500 since 1900. Even though the S&P wasn't officially introduced until 1923, researchers were able to track the total return of its components in other major indexes back to the start of the 20th century.

Crestmont Research's data set yielded 107 rolling 20-year periods, each producing a positive annualized total return. Put another way, if an investor had, hypothetically, purchased an S&P 500 index fund between 1900 and 2006 and held that position for 20 years, they would have made money 100% of the time.

Over 20-year periods, it hasn't mattered which political party held the White House or controlled Congress. In the end, corporate earnings growth does the talking.

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.

One of the most anticipated announcements of the year for Social Security's more than 71 million traditional beneficiaries (retired workers, workers with disabilities, and survivors of deceased workers) is now less than six weeks away.

On Oct. 14, the U.S. Bureau of Labor Statistics will publish the September inflation data, revealing the final puzzle piece needed to calculate Social Security's cost-of-living adjustment (COLA) for the upcoming year. Social Security's COLA is effectively a raise passed on to beneficiaries, designed to offset inflation and ensure recipients don't lose buying power.

But next year's raise will contain something that's somewhat unique: a "Trump bump."

President Trump's policies come with potential adverse impacts for America's top retirement program. Image source: Official White House Photo by Patrick B. Ruddy.

For a second consecutive year, a handful of President Donald Trump's policies will directly impact consumer prices and boost Social Security's COLA. While a larger nominal monthly payout probably sounds great, Social Security's Trump bump-driven 2027 COLA comes with potentially serious unintended consequences.

Donald Trump's policies are boosting inflation and Social Security's 2027 COLA estimates

A modest level of inflation is perfectly normal when the U.S. economy is expanding. If U.S. gross domestic product is climbing, we'd expect businesses to have some degree of pricing power over their goods and services.

However, two of the president's policies are having a direct impact on consumer prices, which, in turn, is expected to boost Social Security payouts in 2027.

The first policy should be familiar, since it's the same one that provided a lift to Social Security's 2026 COLA: Trump's tariff and trade policy.

On April 2, 2025, Trump unveiled his Liberation Day tariffs, consisting of sweeping global tariffs and higher reciprocal tariffs on dozens of countries deemed to have adverse trade imbalances with America. Despite these tariffs being invalidated by the U.S. Supreme Court in February 2026, their impact on consumer prices provided a modest lift to last year's Social Security raise.

It'll likely be a similar story in 2027, with the Trump administration recently reinstating sweeping global tariffs, ranging from 10% to 12.5%, on select imports. Adding duties to imported goods can increase domestic production costs, which are then passed on to consumers.

BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.

Core PCE inflation was 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2.0% target.

Own assets or be left…

— The Kobeissi Letter (@KobeissiLetter) August 26, 2026

But the more prominent source of Social Security's forecasted Trump bump in 2027 is the Iran war. Shortly after the president approved military action against Iran on Feb. 28, the latter closed the Strait of Hormuz to virtually all maritime traffic. This closure, which has persisted almost continuously for six months, has stymied the flow of a fifth of the world's petroleum liquids, resulting in considerably higher fuel prices.

However, the Iran war isn't just an energy supply issue any longer. Rerouted shipments, altered supply chains, and higher costs for petroleum-based products (e.g., plastics and synthetic polymers) are examples of expenses that have reached the broader U.S. economy.

According to The Senior Citizens League, a nonpartisan senior advocacy group, Social Security's 2027 COLA is projected to reach 3.6%. If accurate, next year's raise would tie for the sixth-largest percentage increase since 1992.

Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson anticipates monthly payouts rising by 3.4%. Regardless of which independent estimate is closer, it would represent the sixth consecutive year in which COLAs have met or surpassed 2.5%. The last time that happened was 30 years ago (1988-1997).

Suffice it to say, the puzzle pieces are falling in place for an outsize Social Security raise in 2027 to account for well-above-average inflation.

Image source: Getty Images.

Big Social Security raises can lead to even bigger problems for America's leading retirement program

But there are two sides to every story, and Social Security's Trump bump-driven 2027 COLA won't be an exception.

Entering 2026, America's leading retirement program found itself in quite a bit of trouble. According to the latest Social Security Board of Trustees Report, the program is staring down a long-term (75-year) unfunded obligation of $29.3 trillion, up more than $4 trillion from the previous year's report. In other words, projected income to be collected through the year 2100 is forecast to be insufficient to cover expected outlays (primarily benefits, but also administrative expenses to oversee Social Security).

However, this isn't the most pressing issue for Social Security or its more than 71 million traditional recipients.

According to the 2026 Trustees Report, the Old-Age and Survivors Insurance trust fund (OASI) -- the OASI pays monthly benefits to retired workers and survivors of deceased workers -- is on track to exhaust its asset reserves by the fourth quarter of 2032. These asset reserves represent excess income collected since inception that's been invested in special-issue, interest-bearing government bonds, as required by law.

US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts

Here's the good news: the OASI doesn't need a dime in its asset reserves to continue doling out benefits to retired workers and survivors of deceased workers. The way Social Security is currently funded, with more than 91% of income collected in 2025 coming from the 12.4% payroll tax on earned income, it can't go bankrupt or become insolvent.

Unfortunately, the depletion of the OASI's asset reserves would signify that the existing payout schedule, including annual COLAs, isn't sustainable. If the latest report proves accurate and the OASI's asset reserves are gone by the fourth quarter of 2032, sweeping benefit cuts of 22% may be needed to sustain long-term payouts.

But here's the catch: the Social Security Board of Trustees models relatively modest annual COLAs into its short- and long-term forecasts. Independent estimates calling for next year's raise to tip the scales at 3.4%-3.6% is far from modest.

While existing beneficiaries will likely enjoy an outsize nominal boost to their monthly Social Security check in 2027, a larger-than-normal COLA, driven by President Trump's policies, runs the risk of depleting the OASI's asset reserves even faster than initially estimated.

Big Social Security raises come with potentially major unintended consequences for current and future beneficiaries.

The Motley Fool has a disclosure policy.

Just like peanut butter and jelly, outsize stock market returns have gone hand in hand with Donald Trump's presidency. Though there have been plenty of periods of heightened volatility, the annualized returns of the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) have been higher under Trump than under most other presidents since the late 1890s.

While some of Wall Street's prime catalysts have developed organically, such as the evolution of artificial intelligence (AI), Wall Street's bull market rally has also been influenced by the president's policies. For instance, the Tax Cuts and Jobs Act (signed into law in December 2017) permanently lowered the peak marginal corporate income tax rate to 21%, leading to a surge in buyback activity from S&P 500 companies.

The Trump bull market may be running on borrowed time. Image source: Official White House Photo by Daniel Torok.

But with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite soaring to several new highs in 2026, it's fair to question whether the Trump bull market is nearing an elevator-down event.

While past events can't guarantee what's to come on Wall Street, history has a knack for foreshadowing the future. According to two (thus far) surefire historical precedents, the likelihood of a stock market crash under President Donald Trump is rapidly climbing.

Stock valuations are a glaring red flag

At any given time, headwinds threaten to pull the rug out from beneath investors. Arguably, no historical headwind is more pronounced at the moment than premium stock valuations.

The tricky thing about valuing stocks and/or the broader market is that there's no perfect blueprint. There's always some degree of subjectivity or emotion involved in the valuation process, which is what makes accurately forecasting short-term moves in the Dow, S&P 500, and Nasdaq Composite so challenging.

Thankfully, the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), resolves this issue. The Shiller P/E is based on average inflation-adjusted earnings over the previous decade, and it's been backtested nearly 156 years. In other words, it can provide investors with the closest thing they'll get to an apples-to-apples valuation comparison of Wall Street's benchmark stock index, the S&P 500.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt

— Barchart (@Barchart) July 11, 2026

Since January 1871, the S&P 500's CAPE Ratio has averaged a modest 17.4. As of the closing bell on Aug. 28, it tipped the scales at 42.17, just below its current bull market high of 42.84 and within eyeshot of its all-time high of 44.19, set in December 1999.

History shows that bad things happen when the Shiller P/E Ratio surpasses 30. There have been six instances over nearly 156 years in which the Shiller P/E has exceeded 30, including the present, and the previous five resulted in bear market declines for the Dow, S&P 500, and/or Nasdaq Composite.

Although the CAPE Ratio can't identify when Wall Street's major stock indexes will roll over, its track record of foreshadowing 20% or greater declines is unmatched.

The risk-taking bubble appears ready to burst

However, unsustainable premium stock valuations aren't the only historical red flag for Wall Street. Perhaps the greatest measure of stock market risk-taking -- outstanding margin debt -- suggests trouble lies ahead.

Margin represents the money an investor borrows from their broker, with interest, to purchase or wager against (short-sell) securities. When it's used to buy securities, margin acts as a form of leverage. In other words, it can magnify gains if a security moves in the desired direction, but also amplify losses if it heads in the opposite direction.

Total Margin Debt hits $1.5 Trillion, a new all-time high 🤯 👀 pic.twitter.com/1IXqZGgrqs

— Barchart (@Barchart) July 20, 2026

Although outstanding margin debt is expected to rise in lockstep with the overall value of the stock market, trouble arises when margin usage grows in a parabolic fashion over a short time frame. For example, outstanding margin debt surged 77% to an all-time high of $1.502 trillion over 14 months (April 2025 – June 2026). It would appear that the AI revolution is encouraging risk-taking, which has thus far been rewarded.

But parabolic increases in margin debt over the last three decades have consistently signaled the end of long-winded bull markets. For instance, margin debt soared 80% over 12 months (March 1999 – March 2000), peaking as the dot-com bubble burst. The S&P 500 and Nasdaq lost 49% and 78% of their respective values after the dot-com peak. Meanwhile, margin debt jumped 66% over 13 months (June 2006 – July 2007), peaking mere months before the financial crisis wiped away 57% of the S&P 500's value.

In July 2026, margin debt retraced from its all-time high of more than $1.5 trillion. If this added wind in Wall Street's sails scales back, it may mark the end of this historic bull market.

Image source: Getty Images.

Historical precedent is a pendulum that disproportionately favors optimists

From a purely historical standpoint, things don't look great for the bull market under President Trump. Premium valuations and parabolic moves in margin debt are historical precursors to bear markets, which occasionally entail stock market crashes.

But the great thing about historical precedent is that it works both ways.

Think of history as a pendulum that swings in both directions and provides an array of upside and downside catalysts for the stock market. The thing is, this pendulum doesn't swing proportionately from side to side. While historical precedent does point to the growing likelihood of a significant downside event for the stock market, this proverbial pendulum spends a disproportionate amount of time favoring optimists.

In late May, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) comparing the calendar-day length of every S&P 500 bull and bear market since the start of the Great Depression (September 1929).

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft

— Bespoke (@bespokeinvest) May 30, 2026

Bespoke calculated the average length of S&P 500 bear markets over the last 97 years as 286 calendar days, or approximately 9.5 months. Researchers also showed that no S&P 500 bear market has lasted longer than 630 calendar days.

In comparison, the typical bull market has endured about 3.6 times as long (1,023 calendar days), with more than half (14 of 27) of S&P 500 bull markets lasting longer than the lengthiest bear market.

While historical predictions of short-term doom and gloom and stock market crashes can come true, history shows that long-term optimism wins out every time.

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.

For the first time in more than half a century, Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) entered the year without Warren Buffett as its CEO. His Dec. 31 retirement paved the way for longtime understudy, Greg Abel, to take the helm and oversee the company's $360 billion investment portfolio.

Although Abel has wasted little time reshaping Berkshire's portfolio, several aspects remain the same. Namely, Buffett and Abel both believe in concentrating their company's invested assets in their best ideas. As of the closing bell on Aug. 28, Warren Buffett's successor had 63% ($226 billion) of Berkshire's portfolio concentrated in five superstar stocks:

1. Apple (NASDAQ: AAPL): $72.87 billion (20.2% of invested assets)
2. American Express (NYSE: AXP): $50.52 billion (14%)
3. Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG): $36.63 billion (10.2%, both classes combined)
4. Coca-Cola (NYSE: KO): $35.86 billion (9.9%)
5. Bank of America (NYSE: BAC): $30.13 billion (8.4%)

Warren Buffett retired as Berkshire Hathaway's CEO on Dec. 31. Image source: The Motley Fool.

Berkshire is now a tech-driven conglomerate

Although the trillion-dollar conglomerate that the Oracle of Omaha built has roughly five dozen owned businesses, its investment portfolio is now heavily driven by technology. The sector that Buffett often shied away from now comprises more than 30% of invested assets, courtesy of Apple and Alphabet.

Google parent Alphabet has been the splash addition since Abel took over in January. Though Buffett initiated Berkshire's position in Alphabet, Abel more than tripled it in the first quarter and added another $17 billion in the second quarter.

Abel appears to be attracted to Google Cloud's jaw-dropping growth. Since incorporating artificial intelligence (AI) solutions into the world's No. 3 cloud infrastructure services platform, Google Cloud's sales have gone parabolic.

Meanwhile, Apple's iPhone sales have picked up after a multiyear lull, potentially signaling that the late 2024 launch of the generative AI-inspired Apple Intelligence is making waves.

Image source: Coca-Cola.

The "indefinite" holdings remain foundational

American Express and Coca-Cola, Warren Buffett's so-called "indefinite" holdings, aren't going anywhere.

The beautiful thing about the two companies Berkshire has held longest is their ultra-low cost bases and otherworldly yields on cost. Berkshire sports a cost basis of roughly $3.25 per share in Coca-Cola and $8.49 per share in Amex. Given their respective annual dividends, Coca-Cola's and American Express's yields are 65% and 45% relative to cost, respectively. There's simply no reason to sell shares in either company.

Coca-Cola and Amex are also businesses that benefit from long-winded periods of economic growth. Coca-Cola has a presence in all but three countries (North Korea, Cuba, and Russia), while American Express benefits from both sides of the transaction counter as a payment facilitator and lender.

Bank of America was pared down for an eighth straight quarter

On the other hand, there are no assurances that Bank of America will stick around for the long term.

During the second quarter, Abel sold more than 30 million shares of BofA, marking the eighth consecutive quarter that Buffett or Abel has pared down this position. Over the trailing two years, Berkshire's stake in America's most interest-sensitive money-center bank has shrunk by approximately 53%.

While Bank of America is highly cyclical and benefits from lengthy economic expansions, its valuation may be its biggest drawback. Since Warren Buffett initially invested in BofA in August 2011, its common stock has catapulted from a 62% discount to book value to a 58% premium to book. Value is of the utmost importance to Berkshire's former and current bosses.

Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Sean Williams has positions in Alphabet and Bank of America. The Motley Fool has positions in and recommends Alphabet, American Express, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.

The stock market has been the textbook definition of resilient in 2026. Despite a litany of headwinds threatening to upend equities, the mature stock-driven Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and tech-powered Nasdaq Composite (NASDAQINDEX: ^IXIC) have rallied to several record highs.

But well-above-average inflation might be the one headwind that Wall Street is unable to shake off.

Image source: Getty Images.

The turning of the calendar to a new month means the Federal Reserve has new insights to offer on where inflation may head next. While the initial read on the central bank's September inflation forecast may seem positive, a deeper dive uncovers a glaring red flag for Wall Street.

Headline inflation is expected to ease in September

On weekdays, the Federal Reserve Bank of Cleveland's Inflation Nowcasting tool processes new economic data and adjusts its outlook for several inflation measures, including the Consumer Price Index (CPI), the aforementioned "headline inflation" measure.

BREAKING: July CPI inflation falls to 3.4%, in-line with expectations of 3.4%

Core CPI inflation falls to 2.5%, also in-line with expectations of 2.5%.

Month-over-month CPI inflation rose +0.1%, up from -0.4% in June.

US stock market futures are rising on the news.

-- The Kobeissi Letter (@KobeissiLetter) August 12, 2026

Since trailing 12-month (TTM) inflation reached a three-year high of 4.2% in May, headline inflation has been declining. This three-year high was primarily driven by a brief surge in fuel prices tied to the Donald Trump-led Iran war. As crude oil prices retraced from their Iran war high, gas and diesel prices at the pump slowly followed.

In June and July, TTM inflation dipped to 3.5% and 3.4%, respectively. According to the Cleveland Fed's latest update, the CPI is estimated to ease to 3.38% in August and 3.3% in September.

Lower headline inflation is undoubtedly the silver lining of the Federal Reserve's initial September inflation forecast -- but it doesn't tell the complete story.

Image source: Getty Images.

Core inflation forecasts are climbing, signaling that Trumpflation is entrenched in the economy

While headline inflation forecasts continue to fall, projections for Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy costs, are climbing. Core PCE has historically been one of the favorite inflationary measures used by the Federal Open Market Committee (FOMC) when setting monetary policy.

After peaking at close to a three-year high of 3.5% in May, Core PCE retraced to 3.3% in June and remained at the same level in July. The Cleveland Fed's Inflation Nowcasting tool sees Core PCE reaccelerating to 3.4% in August and 3.49% in September.

The Fed's preferred inflation gauge, Core PCE, came in at 3.3% for July.

That marks 65 consecutive months above the Fed's 2% target.

In June, Kevin Warsh said:

"We've missed for 5 years. And we're gonna fix that."

So far: all talk, no action.

Video: https://t.co/9oZTwtA7vK pic.twitter.com/D5q3QLAEI1

-- Charlie Bilello (@charliebilello) August 26, 2026

Rising Core PCE amid a decline in headline inflation suggests that Trumpflation (inflation caused by President Trump's policies) is no longer just an energy issue. The inflationary effects of the Iran war, and more specifically the closure of the Strait of Hormuz, have reached the broader U.S. economy. Higher costs for petroleum-based goods (e.g., plastics), coupled with businesses being forced to reroute shipments and change suppliers, are examples of how added expenses are lifting consumer prices.

Core PCE forecasts also signal that Trumpflation is digging in its heels. Whereas energy supply shocks tend to be short-lived, the inflationary effects of the Iran war may last substantially longer than anyone expected.

This initial September inflation forecast suggests Fed Chair Kevin Warsh and the FOMC will need to act sooner rather than later. If the FOMC raises interest rates to deliver on Warsh's promise of price stability, it could end Wall Street's sensational four-year bull market. Increasing borrowing costs amid a partially debt-financed artificial intelligence data center build-out is a potential recipe for disaster for Wall Street's major stock indexes.

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.

When most investors hear the Nvidia (NASDAQ: NVDA) name, they think of Wall Street's largest public company and the backbone of the artificial intelligence (AI) data center build-out. Nvidia's graphics processing units (GPUs) hold a virtual monopoly in AI-accelerated data centers and sport compute advantages over external competitors.

But Nvidia is also a prominent investor, closing out the June-ended quarter with $63.4 billion in assets under management. Thanks to two very timely investments over the last year, AI titans Intel (NASDAQ: INTC) and Space Exploration Technologies (SpaceX) (NASDAQ: SPCX) collectively make up 75% of Nvidia's investment portfolio.

Image source: Getty Images.

Intel: 44.23% of invested assets (as of June 30)

Roughly four weeks after the Trump administration announced an investment in chipmaker Intel in August 2025, Nvidia unveiled a collaboration and investment package with Intel.

Nvidia agreed to purchase $5 billion of Intel's common stock at a predetermined price of $23.28 per share. This purchase officially closed in December, giving the world's largest public company a 214,776,632-share stake in the legacy chipmaker. As of the midpoint of 2026, this position was worth nearly $30 billion.

NVIDIA's investment portfolio has grown to $63.4 billion, up 3.4x in just one quarter despite no new trades in Q2.

Intel remains its largest holding at $30 billion, while SpaceX has emerged as the second largest at $21 billion following its IPO.

Here's how the portfolio breaks... pic.twitter.com/VTMYoBovLq

-- Leverage Shares ETPs EU (@LeverageShares) August 28, 2026

The collaboration between the two companies focuses on integrating Nvidia's superior accelerated computing hardware with Intel's top-notch central processing units (CPUs) and x86 ecosystem. Whereas this collaboration is just one of several stepping stones for Nvidia, which grew its Data Center segment sales by 117% in its fiscal second quarter, it's central to Intel's ongoing turnaround efforts.

While Intel has plenty of runway to develop advanced AI chips and siphon away some of Nvidia's overwhelming data center market share, it's still the dominant player in personal computing CPUs. Even though personal computing is no longer a top-tier growth opportunity, the cash flow Intel generates from its x86 ecosystem can fund higher-growth initiatives.

Image source: Getty Images.

Space Exploration Technologies: 30.94% of invested assets (as of June 30)

The face of the AI revolution has also made bank thanks to an investment in AI start-up xAI in January 2026.

In February, Elon Musk's SpaceX announced an all-stock deal to acquire xAI (which also owns social media platform X). The $10 billion Nvidia put to work in xAI in January translated into 122,764,805 shares of SpaceX following its record-shattering initial public offering on June 12. As of June 30, Nvidia's SpaceX stake was worth close to $21 billion.

Although there are several moving parts to SpaceX, AI is central to its growth thesis. The company's mile-long registration statement outlined a $28.5 trillion addressable market, $26.5 trillion of which is tied to AI. As of May 2026, xAI's data centers were operating north of half a million Nvidia GPUs. In other words, it's in Nvidia's best interests that xAI (and other hyperscalers) succeed in their rapid data center expansion.

$SPCX
Q2 operating cash flow: $2.42 billion
Q2 capex: $18.37 billion

Q2 free cash flow: ***negative $16 billion***

Thank you for your attention to this matter.

-- Stanphyl Capital 🇺🇸 🇮🇱 🇺🇦 (@StanphylCap) August 4, 2026

However, Nvidia's mega-investment in SpaceX is anything but secure. Whereas Intel has decades of history in its corner, SpaceX has yet to prove the sustainability of its operating model. Musk's company is losing money and burning through quite a bit of capital as it ramps up Starship and expands its data center compute capacity.

While SpaceX's prospectus infers that Musk's company will be a long-term game changer, justifying its premium valuation amid significant losses and ongoing cash burn may prove challenging.

Sean Williams has positions in Intel. The Motley Fool has positions in and recommends Intel and Nvidia. The Motley Fool has a disclosure policy.

This year has seen its fair share of major leadership transitions. After more than half a century at the helm, Berkshire Hathaway's Warren Buffett retired as CEO on Dec. 31. Similarly, Adobe's chief of 18 years, Shantanu Narayen, announced in March that he planned to step down once a new CEO is appointed.

But perhaps the biggest surprise of all was the April 20 announcement that Apple (NASDAQ: AAPL) CEO Tim Cook, who's held the top position since August 2011, would step down on Sept. 1 and turn the proverbial keys over to John Ternus. Although Cook is staying aboard as the executive chairman of Apple's board, the company's day-to-day operations and its innovative trajectory will now be charted by Ternus.

Apple's now-former CEO delivering remarks at the White House. Image source: Official White House Photo by Daniel Torok.

Since Cook was appointed CEO, Apple shares have soared by more than 2,700%, including dividends. While some investors will attribute these outsize gains to Cook overseeing iPhone innovation, a pivot to high-margin subscription services, and the launch of Apple's generative artificial intelligence (AI) system, Apple Intelligence, his legacy should be defined by the nearly $879 billion investment he oversaw that had nothing to do with AI.

Apple's now-former CEO bet big on his company

As of the closing bell on Aug. 28, $879 billion was greater than the market cap of all but 12 S&P 500 companies, one of which is Apple. In other words, Cook could have used this capital to purchase all but 11 other companies in the benchmark S&P 500.

Instead, Tim Cook and Apple's board have spent $878.5 billion since the start of 2013 purchasing their most prized asset: shares of Apple:

• 2013: $22.95 billion in buybacks
• 2014: $45 billion
• 2015: $35.253 billion
• 2016: $29.722 billion
• 2017: $32.9 billion
• 2018: $72.738 billion
• 2019: $66.897 billion
• 2020: $72.358 billion
• 2021: $85.971 billion
• 2022: $89.402 billion
• 2023: $77.55 billion
• 2024: $94.949 billion
• 2025: $90.711 billion
• 2026: $62.094 billion (through the fiscal third quarter)

During Cook's tenure as CEO, he oversaw a 44.5% reduction in Apple's outstanding share count.

AAPL Shares Outstanding (Quarterly) data by YCharts.

To say this aggressive buyback program had a positive impact on Apple's stock or its bottom line would be an understatement. For companies with steady or growing net income, a decline in the number of shares outstanding can increase earnings per share, making it more attractive to fundamentally focused value investors.

A little over a month ago, Apple shares hit an all-time high, with the company's price-to-earnings (P/E) ratio tipping the scales at nearly 40. Without these aggressive share repurchases, Apple's P/E ratio would have been historically high.

You'll also note that Apple's buybacks really stepped up in 2018, once President Donald Trump's Tax Cuts and Jobs Act (TCJA) took effect. The TCJA permanently lowered the peak marginal corporate income tax rate from 35% to 21% (the lowest level since 1939). With market leaders like Apple retaining more of their income, share repurchases became a priority.

With Cook staying on as executive chair of Apple's board and the company generating boatloads of operating cash flow, buybacks should remain a staple, even with Ternus now steering the ship.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Apple, and Berkshire Hathaway. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.

Investors have been privy to several history-making moments this year, including record highs for the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC), and the largest-ever initial public offering in Wall Street's history.

However, the biggest milestone of all might be the swearing-in of Kevin Warsh on May 22 as just the 17th head of the central bank.

Fed Chair Kevin Warsh may be on a collision course with President Trump over interest rates. Image source: Official White House Photo by Daniel Torok.

But President Donald Trump's handpicked successor to Jerome Powell became Fed chair at one of the most challenging times throughout history. The trailing 12-month inflation rate reached a three-year high of 4.2% in May, putting Warsh on a similar collision course with Trump over interest rates that his predecessor, Powell, often found himself on.

Thus far, President Trump has given Warsh a pass on direct criticism -- but the same can't be said of the Federal Open Market Committee (FOMC).

Kevin Warsh's Jackson Hole speech hints at rate hikes

Since taking the reins from Jerome Powell, Warsh has drastically toned down the commentary we'd typically see between a Fed chair and the press. For example, he eliminated forward-looking guidance from FOMC statements to encourage markets to react to economic data and not rumors.

Fed Chair Warsh's Jackson Hole speech on Aug. 28 offered a new perspective on what he might be thinking about interest rates. He proclaimed "the Fed's predominant focus right now should be on prices," and laid out his "standard" by claiming:

We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.

The inclusion of "at sufficient speed" is the first signal investors have seen that Warsh and the FOMC may consider raising interest rates even if headline inflation is falling (just not fast enough to the Fed chair's and FOMC's liking).

When asked about the possibility of Kevin Warsh and the Fed raising rates, President Trump said, "I have a lot of respect for him, and he'll do what he has to do."

Image source: Getty Images.

Trump continues to lay into the Fed, despite his policies boosting inflation

While President Trump is approaching his commentary about Kevin Warsh differently than he did with Powell, he remains hypercritical of the FOMC and continues to claim that U.S. interest rates are too high.

Just five weeks ago, the president claimed, "Kevin's fantastic, but he's got a board, and the board members are very political."

But the reason the FOMC halted its rate-easing cycle has nothing to do with their political views. Rather, it has to do with the inflationary effects of the president's own policies. Trump's tariffs and the Iran war are providing a clear lift to consumer prices, with evidence mounting (vis-à-vis the stickiness of Core Personal Consumption Expenditures) that Iran-war-driven inflation is entrenching itself in the broader economy.

BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.

Core PCE inflation was 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2% target.

Own assets or be left...

-- The Kobeissi Letter (@KobeissiLetter) August 26, 2026

While lower interest rates would be expected to promote job and economic growth, they can light a fire under well-above-average inflation.

If Warsh and the FOMC do undertake a rate-hiking cycle, it may mark the end of the artificial intelligence (AI)-driven rally on Wall Street. Making borrowing costlier amid the AI infrastructure build-out would effectively throw a monkey wrench into the engine of the stock market's No. 1 catalyst.

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.

Over the last 15 years, retail investors have been making their presence felt on Wall Street. The authors of "The Retail Investor Report," published by the University of Missouri-Kansas City School of Law, note that retail investors comprised 25% of equities trading volume in 2021, nearly double the percentage reported in the previous decade.

Thanks to the transparency of Robinhood Markets' retail investor-focused online trading platform, we can track which stocks these everyday investors favor. While artificial intelligence (AI) kingpin Nvidia (NASDAQ: NVDA) has been a fixture as the most-held stock on Robinhood for quite some time, there's a new trillion-dollar entrant on Robinhood's top-10 leaderboard: Elon Musk's Space Exploration Technologies (SpaceX) (NASDAQ: SPCX).

Image source: Getty Images.

Retail investors want their piece of the multitrillion-dollar AI pie

Excluding exchange-traded funds (ETFs), AI plays a foundational role in the growth prospects of Robinhood's most-held stocks. According to estimates from PwC, AI can create $15.7 trillion in global economic value by 2030 -- and retail investors clearly want to claim their piece of the pie.

Buying shares of Nvidia is the easiest way for retail investors to gain exposure. Nvidia's graphics processing units (GPUs) are the backbone of AI-accelerated data centers. CEO Jensen Huang's aggressive GPU development timeline, coupled with the compute superiority of Nvidia's GPUs, has led to a virtual monopoly on AI-accelerating chips used in enterprise data centers.

Absolutely insane.

Nvidia, $NVDA, just guided $108 BILLION in revenue for Q3 alone.

And, this guidance assumes ZERO data center compute revenue from China.

This builds on the record $96.2 billion in revenue posted for last quarter for a projected total of $204.2 billion in 6...

-- The Kobeissi Letter (@KobeissiLetter) August 26, 2026

But this same excitement about AI is likely why SpaceX has jumped to the seventh most-held stock on Robinhood. Musk's company has locked in deals to rent GPU capacity to AI start-up Anthropic and Google parent Alphabet for $1.25 billion/month and $920 million/month, respectively.

Furthermore, SpaceX's mile-long prospectus highlighted a $28.5 trillion addressable market, $26.5 trillion of which traced back to AI.

Image source: Getty Images.

SpaceX may end up fleecing its retail investors

Although CEO Elon Musk has delivered jaw-dropping long-term gains for his shareholders at Tesla (the third most-held stock on Robinhood), it could be a different story for SpaceX's investors.

Aside from the fact that SpaceX isn't profitable and is burning through a boatload of capital as it ramps up Starship and expands its data center compute capacity, the company's share unlock schedule for select insiders isn't favorable to retail investors.

Usually, a newly public company will prevent its insiders (high-ranking executives, board members, and early investors) from selling their shares for the first 180 calendar days after an initial public offering. SpaceX threw convention aside and employed an accelerated and staggered lockup period that allows eligible insiders to cash out at retail investors' expense.

Great look at the SpaceX shares unlock schedule as well as the potential passive buying schedule from @JSeyff @FrancisSharoon Depending on the early post-IPO returns, this could really play with and disperse the returns of "passive" funds (which is why there's arguably no such... pic.twitter.com/KOuEkJlngF

-- Eric Balchunas (@EricBalchunas) May 28, 2026

What makes this decision even more noteworthy is that SpaceX didn't sell a large percentage of its outstanding shares (OS) when it went public. Whereas most companies going public sell 10% to 25% of their OS, SpaceX sold roughly 555.6 million shares, representing less than 5% of its OS. With each new time- and event-based share-unlock milestone, SpaceX's retail investors can be swamped by newly tradable shares.

While Elon Musk's vision for SpaceX is exciting, the No. 7 holding of Robinhood's retail investors looks like a fleecing waiting to happen.

Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

For the better part of the last four years, artificial intelligence (AI) has been the wind in Wall Street's sails. But make no mistake about it, the "Magnificent Seven" have put the stock market's major indexes on their proverbial backs and lifted them to new heights.

The Magnificent Seven consist of:

• Nvidia (NASDAQ: NVDA)
• Apple (NASDAQ: AAPL)
• Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG)
• Microsoft (NASDAQ: MSFT)
• Amazon (NASDAQ: AMZN)
• Meta Platforms (NASDAQ: META)
• Tesla (NASDAQ: TSLA).

Although all seven companies are industry leaders with clear competitive advantages, their outlooks can differ greatly. Arguably, the best differentiating factor among the Magnificent Seven is their cash flow.

Image source: Getty Images.

Ranking the Magnificent Seven by the forward-year cash flow

The traditional price-to-earnings (P/E) ratio is the usual go-to when valuing a public company or the broader market. However, the P/E ratio often isn't the best valuation measure when dealing with growth stocks.

Since all seven members of the Magnificent Seven aggressively reinvest their cash flow into high-growth initiatives, including AI, it makes for the ideal valuation metric.

Based on Wall Street's consensus cash-flow-per-share estimates for the forward year, here's how the Magnificent Seven rank from most (i.e., cheapest) to least attractive:

1. Meta Platforms: 9 times estimated forward-year cash flow
2. Amazon: 11.2
3. Microsoft: 15.1
4. Alphabet: 15.9
5. Nvidia: 16
6. Apple: 28.2
7. Tesla: 76

At one end of the spectrum, iPhone maker Apple and electric-vehicle kingpin Tesla stand out for all the wrong reasons. Both are historically pricey based on future cash flow and appear to offer limited upside.

However, social media titan Meta Platforms and dual-industry leader Amazon are standouts in the opposite direction.

Image source: Getty Images.

Meta and Amazon stand out for all the right reasons

As has been the case for quite some time, Mark Zuckerberg's company is the cheapest Magnificent Seven stock relative to its future cash flow. Although there's been some concern about Meta's aggressive spending on its data center build-out, it has the steady cash flow of its social media assets to fall back on.

Meta's family of apps attracted an average of 3.6 billion daily users in June. With no other social media platforms close to this figure, it's no surprise that Zuckerberg's company sports exceptional ad pricing power.

3.6 Billion people use a Meta Platforms $META owned product every day

There is currently estimated to be around 8.3 Billion people on Earth

That means roughly 43.4% of the world's population uses Facebook, Instagram, and/or WhatsApp every single day pic.twitter.com/0NyPbCAKto

-- Evan (@StockMKTNewz) July 29, 2026

However, Meta is getting an early boost from AI through its advertising platform. Generative AI is allowing Meta's clients to tailor static and video messages for individual users, which can improve click-through rates and further strengthen Meta's ad pricing power.

Meanwhile, Amazon leads in two separate categories. Most investors are familiar with its dominance in online retail sales, but they might not realize how much annual sales are generated by the world's leading cloud infrastructure services platform, Amazon Web Services (AWS).

Amazon Web Services $AMZN is now a $168.8 Billion Revenue Run Rate business

AWS grew by 36.8% during the quarter its fastest growth since pic.twitter.com/va66AGGbfg

-- Evan (@StockMKTNewz) July 30, 2026

As of the June-ended quarter, AWS is pacing nearly $169 billion in annual run rate sales. This segment generates considerably higher margins than its online marketplace and is responsible for the lion's share of Amazon's operating income. Since Amazon integrated generative AI and large language model capabilities into AWS, year-over-year sales growth has reaccelerated.

As AWS grows into a larger piece of Amazon's revenue pie, the company's cash flow per share can expand at an even quicker pace.

Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

The Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) rocketing to several new highs isn't the only important milestone of 2026. On May 22, we also welcomed a new Fed chair for only the 17th time since the central bank's creation in December 1913.

President Donald Trump's handpicked successor to Jerome Powell, Kevin Warsh, has come onto the scene with a bang. During Warsh's swearing-in ceremony, he promised to lead a reform-oriented Fed, and has thus far lived up to his word.

Fed Chair Kevin Warsh's Jackson Hole keynote address was a doozy. Image source: Official White House Photo by Daniel Torok.

Since taking the reins, he's shelved forward-looking guidance in Federal Open Market Committee (FOMC) meeting statements and commissioned five task forces to aid in the central bank's conduct of monetary policy.

But it's three words uttered by Fed Chair Kevin Warsh in his latest speech that are sending shockwaves through Wall Street.

Fed Chair Warsh effectively outlines an inflation ultimatum

For more than two decades, it had been customary for the FOMC to include forward-looking guidance in its meeting statements. The guidance would transparently convey to economists and investors what the Fed was likeliest to do next.

With Warsh removing this language from FOMC statements and favoring an environment in which the central bank takes a back seat and allows equity markets to react to economic data, investors have been craving any information Warsh or his colleagues may offer as to what the Fed may do next. Warsh's keynote remarks at the annual economic symposium in Jackson Hole, Wyoming, on Aug. 28 gave economists and investors what they were looking for.

Federal Reserve Chairman Kevin Warsh signaled the central bank may not be done fighting inflation, saying financing conditions didn't look restrictive to him and that better price readings recently hadn't convinced him the trend was improving.

"I would be hard pressed to...

-- Nick Timiraos (@NickTimiraos) August 28, 2026

Several of the Fed chair's comments echoed his previously stated promise to deliver price stability. He acknowledged that inflation is running well above the Fed's long-term target of 2%, lumped the blame for elevated inflation on the central bank, and signaled that "short-term interest rates are the predominant tool to achieve the dual mandate [maximum employment and price stability]."

But it's the summation of Kevin Warsh's Jackson Hole speech that's echoing through Wall Street. In wrapping things up, he laid out what he referred to as his "standard" by saying:

We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.

While Fed Chair Warsh has repeatedly stated that the Fed will deliver price stability, it's the first time we've seen him draw a proverbial line in the sand. These three words, "at sufficient speed," leave the door wide open for rate hikes, even if the prevailing inflation rate is falling, just not fast enough to appease Warsh and FOMC policymakers.

As for Wall Street, Kevin Warsh's inflation ultimatum may lead to the ultimate bull market rug pull.

Nothing has powered the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite higher quite like the artificial intelligence (AI) infrastructure build-out. If Warsh and the FOMC aren't satisfied with the pace of progress on the inflation front and choose to hike interest rates, it would make borrowing costlier and potentially slow the AI data center build-out. Given that the stock market is priced for perfection, any growth slowdown or valuation rerating could prove disastrous.

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.

Arguably, few events are more exciting for investors than the filing of Form 13Fs with regulators. No later than 45 calendar days after a quarter ends, institutional investors with at least $100 million in assets under management are required to file a 13F detailing their second-quarter buying and selling activity.

Among billionaire money managers, few 13Fs are more anticipated than Stanley Druckenmiller's. Duquesne Family Office's billionaire boss has a knack for spotting amazing deals hiding in plain sight and has an exemplary track record of selling at the right time. During the second quarter, Druckenmiller kicked red-hot artificial intelligence (AI) stock Micron Technology (NASDAQ: MU) to the curb and piled into AI superstar Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), which has rallied 13,700% since its initial public offering (IPO) in August 2004.

Duquesne Family Office's Stanley Druckenmiller is one of Wall Street's most followed billionaire money managers. Image source: Getty Images.

Billionaire Stanley Druckenmiller gave Micron the boot

Duquesne's billionaire investor was a busy bee in the second quarter, exiting nearly two dozen holdings and reducing 11 others. Perhaps no sale stands out more than the 23,400 shares sold of memory and storage solutions behemoth, Micron.

Profit-taking likely explains Druckenmiller's exit. The average security in Duquesne's investment portfolio is held for just seven months, indicating that its chief investor isn't afraid to ring the register when opportunities present themselves. Between March 31 and the end of June, Micron shares nearly quadrupled in value.

But profit-taking might not be the full story.

Historically, memory and storage solutions providers are highly cyclical. In hindsight, buying stocks like Micron when their financial outlook is poor has proven fruitful for patient investors. Conversely, selling memory and storage stocks when they have historically low forward price-to-earnings ratios and possess exceptional pricing power has been the smart move.

Micron will likely need everything to go right with the AI infrastructure build-out to sustain its trillion-dollar market cap.

Image source: Getty Images.

Duquesne Family Office's boss piles into Alphabet

At the other end of the spectrum, Druckenmiller purchased four dozen new holdings during the second quarter and added to 16 existing positions. No individual new stock purchase was larger than the 336,300 shares of Alphabet's Class A shares (GOOGL), worth over $120 million on June 30.

Although Druckenmiller sold every share of Alphabet in the first quarter, he repurchased nearly the same amount that he sold in the second quarter. One catalyst could be the stock market's short-lived Iran-war-driven swoon, which provided an (in hindsight) attractive buying opportunity in March and April.

But it's more likely that Alphabet's soaring AI sales compelled Stanley Druckenmiller to mash the buy button.

Google Cloud knocked it out of the park again. They're now at a ~$99B run rate growing 82% YoY. Another MASSIVE jump in YoY growth

Quarterly YoY growth trends below $GOOG pic.twitter.com/9pAJvuajmh

-- Jamin Ball (@jaminball) July 22, 2026

Alphabet's Google Cloud, the world's No. 3 cloud infrastructure services platform, was steadily growing in the mid-20% range before incorporating generative AI and large language model capabilities. Since integrating these AI solutions into its platform, AI sales have gone parabolic. Google Cloud's second-quarter sales jumped 82% from the prior-year period.

Duquesne's billionaire investor likely also appreciates Alphabet's sustainable moat. While all eyes seem to be on Google Cloud and the AI infrastructure build-out, it's important not to overlook Google's sheer dominance, which accounted for 91% of internet search traffic in July. Between Google and streaming platform YouTube (the second-most-visited social site on the planet), Alphabet sports top-tier ad-pricing power and can generate mountains of operating cash flow.

Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Micron Technology. The Motley Fool has a disclosure policy.

It's been a year of historic change for Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) and its shareholders. On Dec. 31, after more than half a century at the helm, Warren Buffett retired as CEO and passed the baton to his understudy, Greg Abel.

Abel hasn't wasted any time reshuffling Berkshire's $357 billion investment portfolio. The company's Form 13F filing on Aug. 14, detailing second-quarter trading activity, shows that Warren Buffett's successor pared down Bank of America (NYSE: BAC), yet again, and absolutely piled into one of Wall Street's most beloved virtual monopolies: Google parent Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG).

Warren Buffett retired as Berkshire Hathaway's CEO on Dec. 31. Image source: The Motley Fool.

Abel pared down Bank of America stock for an eighth consecutive quarter

During the first quarter, Abel exited 16 positions and slashed six others, one of which was money-center behemoth Bank of America. Though far fewer holdings were pared down in the second quarter, BofA was once again on the list, with 30,230,150 shares sold. Buffett or Abel has sold shares of BofA in each of the last eight quarters, reducing Berkshire's stake by a cumulative 53%.

Profit-taking is the most logical reason behind this selling, but it's probably not the only catalyst.

For example, Bank of America stock isn't the bargain it once was. When the Oracle of Omaha initially took a stake in BofA's preferred stock in August 2011, its common shares were trading at a 62% discount to book value. In early August 2026, it was trading at a 62% premium to its book value. Both Buffett and Abel are sticklers for value.

Furthermore, BofA is the most interest-sensitive of America's big banks. While this distinction was a massive tailwind when the Federal Reserve raised interest rates from March 2022 to July 2023, it became a drag on net interest income when the Fed cut rates from September 2024 to December 2025.

Image source: Getty Images.

Alphabet has become one of Berkshire Hathaway's core holdings

On the other hand, Berkshire's new boss can't stop buying shares of Alphabet. Abel more than tripled Berkshire's stake in the company in the first quarter and added another $17 billion, including $10 billion via private placement, during the second quarter. It's now surpassed Coca-Cola and Bank of America to become Berkshire's third-largest holding.

Buffett, who initiated the purchases of Alphabet stock last year, and Abel both appreciate businesses with sustainable moats. According to GlobalStats, Google has maintained an 89% to 93% share of global internet search traffic over the trailing decade.

Meanwhile, YouTube, which Alphabet also owns, is the second-most-visited social site behind Google. Suffice it to say, Alphabet commands exceptional ad pricing power during long-winded economic expansions.

$GOOG Alphabet Q2 FY26:

• Revenue +24% Y/Y to $119.8B ($2.8B beat).
• Operating margin 34% (+2pp Y/Y).
• $98B net gains from equity investments.

☁️ Google Cloud:
• Revenue +82% Y/Y to $24.8B
• Operating margin 36% (+15pp Y/Y).

▶️ YouTube ads +13% to $11.1B pic.twitter.com/seYlITzfg6

-- App Economy Insights (@EconomyApp) July 22, 2026

But it's Alphabet's artificial intelligence (AI) ties that likely have Buffett and Abel excited. Since integrating generative AI and large language model capabilities into Google Cloud, the world's third-largest cloud infrastructure services platform by total spend, sales have skyrocketed. This segment, which generates substantially juicier margins than advertising, delivered 82% year-over-year sales growth in the June-ended quarter.

If Alphabet's AI ambitions are realized, it's not out of the question that it eventually unseats Apple as Berkshire Hathaway's top holding.

Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Alphabet and Bank of America. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.

Since early June, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and innovation-powered Nasdaq Composite (NASDAQINDEX: ^IXIC) have rallied to fresh all-time highs. But these gains aren't reflective of the inflationary headwinds that lie beneath the surface.

In May, the trailing 12-month U.S. inflation rate reached a three-year high of 4.2%, which is more than double the Federal Reserve's long-term target of 2%. In addition to expected inflationary factors, such as businesses possessing modest pricing power over their goods and services amid an expanding economy, several of President Donald Trump's policies have contributed to higher inflation, including tariffs and the Iran war.

Fed Chair Kevin Warsh's Jackson Hole speech riled up Wall Street. Image source: Official Federal Reserve Photo.

Persistently elevated inflation has investors questioning whether Fed Chair Kevin Warsh and the Federal Open Market Committee (FOMC) will take action and adjust short-term lending rates to deliver price stability.

The probability of a September rate hike has surged to 60%

As of Aug. 27, the CME Group's FedWatch Tool, which uses 30-day Fed Funds futures prices to estimate the probability of federal funds target rate changes at upcoming FOMC meetings, assigned a 35% chance of a rate hike at the Sept. 15-16 meeting.

But following Warsh's comments at the annual economic symposium in Jackson Hole, Wyoming, on Aug. 28, the odds of a September rate hike have nearly doubled to 60%. Several of Warsh's to-the-point comments spooked Wall Street and appeared to clarify his and the FOMC's stance on inflation.

Fed Chair Kevin Warsh says the central bank may need to raise rates if underlying inflation does not return to its 2% target, as financial conditions remain insufficiently restrictive https://t.co/p3RmFyyO8g pic.twitter.com/oemokaCXav

-- Reuters Business (@ReutersBiz) August 28, 2026

For starters, Warsh effectively weighed the economic risks of both aspects of the dual mandate, maximum employment and price stability, and determined the latter to be of the utmost importance. While noting that neither the Personal Consumption Expenditures price index nor the Consumer Price Index were perfect, the new Fed chair stated:

Inflation is running above our two percent target. So the Fed's predominant focus right now should be on prices.

In discussing the Fed's key principles, Warsh proclaimed that "short-term interest rates are the predominant tool to achieve the dual mandate." While a surge in long-duration bond yields has worked in the central bank's favor -- higher yields at the long end of the yield curve can increase borrowing costs for businesses and essentially pump the brakes on inflation -- Warsh recognizes that the FOMC is ultimately responsible for price stability.

But perhaps the biggest reaction in Fed Funds futures activity, and the reason the odds of a September rate hike surged after the Fed chair's Jackson Hole speech, was his summation of the central bank's objectives. Warsh opined:

Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.

In particular, it's the addition of "at sufficient speed" that likely sent shockwaves through the stock market. Warsh noted that prevailing inflation has been above the Fed's long-term target of 2% for 65 months. His patience, and that of his FOMC colleagues, for persistently elevated inflation may be wearing thin.

If the FOMC does hike interest rates in September, it may mark the end of Wall Street's historic artificial intelligence (AI)-driven rally. The stock market is priced for perfection, and anything that could slow the AI infrastructure build-out, such as elevated borrowing costs, can halt Wall Street's bull market rally in its tracks.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

Although earnings season is the crown jewel of each quarter for investors, Form 13F filings can be equally important. A 13F shows investors which stocks Wall Street's savviest money managers, such as Appaloosa's billionaire investment chief, David Tepper, bought and sold in the latest quarter.

Tepper oversees more than $7.7 billion in assets under management and has heavily weighted his portfolio toward artificial intelligence (AI) stocks, including the usual suspects, Nvidia (NASDAQ: NVDA), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Amazon (NASDAQ: AMZN). However, you might be surprised to learn that Appaloosa's boss kicked the hottest AI stock, Sandisk (NASDAQ: SNDK), to the curb in the second quarter.

David Tepper has packed Appaloosa's investment portfolio with AI stocks. Image source: Getty Images.

More than three-quarters of Appaloosa's portfolio is devoted to AI stocks

David Tepper closed out the June quarter with only 27 holdings. Nevertheless, approximately 77% of his fund's invested assets are tied to companies where AI is central to the growth thesis. Amazon, Taiwan Semiconductor, and Nvidia are Appaloosa's first, third-, and ninth-largest holdings, respectively.

The AI revolution is a multitrillion-dollar global opportunity, and Tepper has done his best to address all its aspects. For instance, Nvidia is the infrastructure backbone of AI-accelerated data centers. None of its external competitors is particularly close to matching the compute capabilities of Nvidia's graphics processing units (GPUs).

Breaking: David Tepper just filed his Q2 2026 13F

Here's everything you need to know about his recent 13F

Top 10 positions:
• Amazon $AMZN (15.4%)
• Micron Technology $MU (14.6%)
• Taiwan Semiconductor $TSM (10.2%)
• Alphabet $GOOG (8.5%)
• Uber $UBER (7.2%)
• iShares... pic.twitter.com/13mcEN5doV

-- Michael Burry Stock Tracker ♟ (@burrytracker) August 14, 2026

Taiwan Semiconductor is also a foundational player on the hardware side of the data center build-out. It's the world's largest contract chip fabricator, and has been expanding its chip-on-wafer-on-substrate capacity at a breakneck pace in an attempt to satiate the overwhelming enterprise demand for GPUs.

Meanwhile, Amazon gives Tepper exposure to real-world AI applications. Amazon Web Services (AWS) is the world's leading cloud infrastructure services platform by total spend. Since integrating generative AI and large language model solutions into AWS, sales for this high-margin segment have reaccelerated.

Image source: Getty Images.

Gone in a flash

While Appaloosa's billionaire investor has been seemingly "collecting the whole set" of Wall Street's most influential AI stocks, he booted Sandisk, the highest-flying of them all, from his fund in the second quarter.

If you want a logical reason why the highly successful Tepper would send a foundational NAND flash memory and storage solutions provider in the AI data center build-out to the chopping block, look no further than profit-taking.

Sandisk shares have rallied more than 3,000% over the trailing year (as of Aug. 27), and Tepper made his initial purchase in the first quarter of 2027. Tepper could have quadrupled or quintupled his initial investment in a matter of months. Plus, Tepper has demonstrated that he's not afraid to cash in his chips, with an average hold time of around three years.

But there may be more to dumping Sandisk than meets the eye.

Historically, memory and storage solutions are highly cyclical. In other words, when things look abysmal for Sandisk is precisely when you want to invest in it. On the other hand, when Sandisk is trading at a mouthwatering single-digit forward price-to-earnings ratio has historically been when investors should sell. While demand for Sandisk's memory solutions has shown no signs of slowing, history is pretty clear about what comes next.

Sean Williams has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Less than three months ago, on June 12, Elon Musk's Space Exploration Technologies (SpaceX) (NASDAQ: SPCX) rewrote Wall Street's record books. Not only did SpaceX become the largest-ever initial public offering (IPO), but the $85.7 billion raised from its debut, including the underwriters' overallotment, nearly tripled the previous record holder, Saudi Aramco ($29.4 billion).

But SpaceX isn't done making history. Due to its unique share unlock structure, Sept. 9 marks the next major milestone for the company and its shareholders.

Image source: Getty Images.

Insiders can cash out (again!) in a little over one week

When private companies go public, they usually prevent insiders -- high-ranking executives, board members, and beneficial owners of at least 10% of a company's outstanding shares -- from selling their shares until 180 calendar days after the IPO. This lockup period is put in place to ensure that insiders don't take advantage of early retail investor buzz.

However, Musk's SpaceX has shunned tradition. The company's mile-long registration statement (S-1) outlined an accelerated and staggered share-unlock schedule that allows certain insiders (Musk not included) to cash out far earlier than the 180-calendar-day mark.

Great look at the SpaceX shares unlock schedule as well as the potential passive buying schedule from @JSeyff @FrancisSharoon Depending on the early post-IPO returns, this could really play with and disperse the returns of "passive" funds (which is why there's arguably no such... pic.twitter.com/KOuEkJlngF

-- Eric Balchunas (@EricBalchunas) May 28, 2026

Two trading days after SpaceX reported its second-quarter operating results on Aug. 4, approximately 911.5 million early release insider shares became eligible for sale. On the 70th calendar day after SpaceX's debut (Aug. 20), another 319 million early release-eligible insider shares were added to the proverbial pot.

The next share-unlock milestone occurs on the 90th trading day post-IPO, which is Sept. 9. Once again, 319 million additional shares will be eligible for sale by select insiders. The next time-based milestones will occur on Sept. 24, Oct. 9, and, by virtue of the weekend, Oct. 26.

Image source: Getty Images.

Space Exploration Technologies' insider sales may swamp retail investors

But it's not just the sheer volume of early release-eligible insider shares that can be dumped on retail investors that's potentially concerning. It's that SpaceX's float was artificially low to begin with.

Usually, private companies will sell between 10% and 25% of their outstanding shares when going public. Musk's company announced it was selling 555.6 million shares at $135 each just days before its June 12 IPO. While this might sound like a large number, it represented less than 5% of the company's outstanding shares.

Keeping the company's float (tradable shares) low was beneficial to shareholders in the weeks following SpaceX's IPO. Several major indexes altered their entry rules and granted SpaceX fast entry. This meant that some of the company's low float was gobbled up by passive funds, which artificially inflated its share price.

To be clear, this means only the S&P 500 will exclude SpaceX shortly after its IPO.

FTSE Russell adds eligible megacap IPOs after the close of the 5th trading day.

Nasdaq adds them about 15 trading days after listing.

The S&P 500 kept its rules, so SpaceX waits the full...

-- Hedgeye (@Hedgeye) June 4, 2026

But with each new share-unlock milestone, early release-eligible insiders have the opportunity to effectively flood the market with tradable shares and swamp retail investors. There's a reason I've referred to the Space Exploration Technologies IPO as the "greatest fleecing of retail investors in Wall Street's storied history."

Even if ongoing insider sales fail to completely swamp retail investors, SpaceX's operating results will likely do the trick. The company isn't particularly close to recurring profits and is trading at a price-to-sales ratio that's historically consistent with bubble territory. Additionally, hot, tech-driven IPOs don't have the best track record on Wall Street.

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.

This has been a historic year for Wall Street in several respects. We've watched the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) claim several record-closing highs, and witnessed the largest-ever initial public offering take shape, courtesy of Elon Musk's Space Exploration Technologies (SpaceX).

But a strong argument can be made that Kevin Warsh becoming only the 17th head of the central bank since its December 1913 inception is an even bigger deal.

President Donald Trump's handpicked successor to Jerome Powell has wasted little time enacting reforms since his May 22 swearing-in ceremony. In particular, he's done away with forward-looking guidance in Federal Open Market Committee (FOMC) meeting statements, which had been a staple for more than two decades.

Fed Chair Kevin Warsh just leveled with Wall Street in his Jackson Hole speech. Image source: Official Federal Reserve Photo.

This perceived lack of transparency has left Wall Street and investors to guess what FOMC policymakers will do next... until now.

Kevin Warsh just spooked the stock market with the blunt truth

On Friday, Aug. 28, Fed Chair Warsh delivered a keynote speech at the annual economic conference held in Jackson Hole, Wyoming. With Warsh adamant that the central bank avoid forward-looking guidance and allow financial markets to react to economic data, Wall Street and investors were looking for clarity on how the Fed chair and his FOMC colleagues might approach persistently above-average inflation.

While Warsh expressed optimism about the labor market, saying, "I believe labor markets are consistent with full employment," he described the price-stability aspect of the dual mandate as "concerning." Said Warsh:

Inflation is running above our two percent target. So the Fed's predominant focus right now should be on prices.

These 10 words, "the Fed's predominant focus right now should be on prices," hammer home Warsh's hawkish tendencies and the growing likelihood that the central bank will eventually raise interest rates to tame a prevailing inflation rate that reached a three-year high of 4.2% in May.

Image source: Getty Images.

Warsh isn't counting on the bond market to do all the legwork on inflation

Additionally, Warsh's comments clearly signaled that price stability (or the lack thereof) lies solely with the Federal Reserve.

In Warsh's July FOMC meeting statements with the press, he noted that a sizable intermeeting surge in U.S. Treasury yields worked in policymakers' favor. Higher yields at the long end of the yield curve (10-, 20-, and 30-year Treasury yields) can make borrowing costlier for businesses and pump the brakes on inflation without the Fed needing to adjust its monetary policy.

JUST IN 🚨: U.S. 30-Year Treasury Yield hits 5.30% for the first time since the run-up to the Global Financial Crisis 🤯 👀 pic.twitter.com/SrUnHvClrl

-- Barchart (@Barchart) August 17, 2026

However, Warsh's speech at Jackson Hole makes it crystal clear that "short-term interest rates are the predominant tool to achieve the dual mandate." This comes across as confirmation of Warsh's (and the FOMC's) willingness to raise interest rates to deliver price stability.

If the central bank raises interest rates, it threatens to stamp out the stock market's No. 1 catalyst, the artificial intelligence (AI) data center build-out. The otherworldly spending on the AI infrastructure build-out has been financed in part by debt. If borrowing becomes costlier, downward revisions in growth projections or a re-rating of historically high stock valuations could prove devastating to Wall Street.

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.

We're getting close to one of the most exciting times of the year for Social Security's more than 71 million traditional beneficiaries (retired workers, workers with disabilities, and survivors of deceased workers). I'm talking about the annual unveiling of Social Security's cost-of-living adjustment (COLA), which is slated for Oct. 14.

Put simply, Social Security's COLA is the "raise" beneficiaries receive to combat the effects of inflation and avert a loss of buying power. Since rising prices (inflation) are perfectly normal in an expanding economy, the Social Security Administration has passed along a raise to its beneficiaries in all but three years (2010, 2011, and 2016) since 1975.

Social Security's 2027 COLA is set to make history on three fronts, thanks in part to policies put in place by President Donald Trump.

President Trump's policies are directly affecting consumer prices. Image source: Official White House Photo by Joyce N. Boghosian, courtesy of the National Archives.

Social Security benefits are on track for a second consecutive Trump bump

As noted, a modest level of inflation, marked by businesses possessing some degree of pricing power over their goods and services, is expected when the U.S. economy is expanding. But since President Trump's inauguration in January 2025, we've witnessed that some of his policies have directly affected the prevailing inflation rate.

For example, in early April 2025, Trump unveiled his long-awaited sweeping global tariffs and higher reciprocal tariffs on dozens of countries deemed to have unfavorable trade imbalances with America. Although these tariffs, imposed under the International Emergency Economic Powers Act, were ultimately invalidated by the U.S. Supreme Court in February 2026, they boosted consumer prices throughout 2025 (i.e., a "Trump bump") and led to a modest increase in Social Security's 2026 COLA.

In 2026, two of President Trump's policies are directly influencing consumer prices, which will ultimately determine the size of the raise Social Security beneficiaries receive next year.

BREAKING: US July PCE inflation, the Fed's preferred inflation metric, hits 3.7%, above expectations of 3.6%.

Core PCE inflation was 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2.0% target.

Own assets or be left…

— The Kobeissi Letter (@KobeissiLetter) August 26, 2026

For a second consecutive year, the president's tariffs are playing a role. Despite the Supreme Court nixing Trump's Liberation Day tariffs, the Trump administration has reimposed sweeping global tariffs on more than 80 countries using Section 301 of the Trade Act of 1974.

Assigning duties to select imported goods can increase domestic production costs and raise consumer prices, just as it did in 2025.

The Trump-led Iran war is the other major policy that's directly affecting consumer prices. Not long after the president approved military action against Iran on Feb. 28, the latter shut down the Strait of Hormuz to most commercial vessels. This action stymied the flow of a fifth of the world's crude oil supply, sending fuel prices to the moon.

We're also beginning to see evidence that Trumpflation (inflation driven specifically by the president's policies) is ingraining itself in the U.S. economy.

Image source: Getty Images.

Social Security's 2027 raise should be unique in a variety of ways

Although President Trump's policies come with unintended consequences for America's leading retirement program, Social Security's 2027 COLA is nevertheless on track to be historic.

The first notable effect of a second straight year with a Trump bump can be seen in the sheer magnitude of next year's projected raise. Following the release of the July inflation report, The Senior Citizens League (TSCL), a nonpartisan senior advocacy group, updated its 2027 COLA projection to 3.6%. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson refreshed her 2027 COLA estimate to 3.4%.

At the average of these two estimates (3.5%), Social Security beneficiaries would enjoy a tie for the seventh-largest percentage increase in benefits since 1992. If TSCL's higher forecasted raise of 3.6% proves accurate, it would mark a tie for the sixth-largest percentage increase in benefits spanning 36 years.

A second way Social Security's Trump bump-led 2027 COLA can make history is by continuing a streak of above-average raises.

Throughout the 2010s, Social Security COLAs were anemic. Three years of deflation (2010, 2011, and 2016) resulted in no COLA being passed on to beneficiaries, while 2017 marked the smallest positive raise in history (0.3%). The 2020s have, thus far, been a welcome change for program recipients.

BREAKING: 71 million Social Security beneficiaries will see a 2.8% cost-of-living adjustment (COLA) beginning in January 2026. The average annual increase over the last decade: 3.1%.https://t.co/l5IYmkf6Ih pic.twitter.com/pgqtPLgqMB

— Charlie Bilello (@charliebilello) October 24, 2025

Over the last five years, Social Security COLAs have clocked in at 5.9% (2022), 8.7% (2023), 3.2% (2024), 2.5% (2025), and 2.8% (2026). The 8.7% raise in 2023 was the highest on a percentage basis since 1982. If Social Security's 2027 COLA reaches 3.4% to 3.6%, it would represent a sixth consecutive year with an above-average payout increase. The last time Social Security benefits grew by at least 2.5% for six straight years was three decades ago (1988-1997).

But the third potential history-making moment for Social Security's 2027 COLA may be the most profound. For select retired-worker beneficiaries, next year's raise is set to come with a rare silver lining.

Close to half of all retired-worker beneficiaries are enrolled in traditional Medicare, which is comprised of Part A (in-hospital stays), Part B (outpatient services), and Part D (prescription drugs). While Part A has no cost for approximately 99% of retirees, Part B has a standard monthly premium ($202.90 in 2026). This premium is usually deducted from a retiree's monthly Social Security payout.

Throughout much of the 21st century, Part B premiums have consistently soared at a faster pace than Social Security COLAs. Over the last three years, the Part B standard premium has risen by 5.9% (2024), 5.9% (2025), and 9.7% (2026). Rapidly rising healthcare premiums have somewhat or fully offset Social Security COLAs for tens of millions of retired-worker beneficiaries.

However, the 2026 Medicare Trustees Report calls for Medicare's Part B premium to rise by 3.25% next year. If accurate, it would mark the first time since 2023 that Social Security's COLA will increase (based on independent estimates) at a faster pace than Medicare's Part B standard premium. In other words, retired-worker beneficiaries who are enrolled in traditional Medicare should retain more of next year's COLA.

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For the better part of the last 17 years, Wall Street can do no wrong. Though there have been short-lived periods of uncertainty and volatility, optimists have ruled the roost and propelled the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) to new heights.

More recently, the evolution of artificial intelligence, better-than-expected corporate earnings, record S&P 500 share buybacks, and historic initial public offering activity have been the stock market's primary catalysts.

Nevertheless, history teaches us that bull markets aren't indefinite. Although the Dow, S&P 500, and Nasdaq Composite have a knack for rising over multiple decades, stock market corrections and bear markets are par for the course when investing over the long term.

Image source: Getty Images.

While historical events can never guarantee what's to come on Wall Street, they do, more often than not, have an uncanny ability to foreshadow the future. One such ultra-rare event is occurring right now, for only the third time since the early 1870s, and it bodes poorly for Wall Street.

The stock market has reached a level observed only three times since January 1871

Make no mistake about it, there are always catalysts capable of turning the stock market on its proverbial head. For instance, historical precedent shows that parabolic moves in outstanding margin debt are a harbinger of downside for stocks.

However, no headwind is screaming louder at the moment than historically high stock valuations.

What makes valuing stocks so tricky is the lack of a blueprint. Since there isn't a one-size-fits-all way to evaluate and value all businesses or the broader market, stock valuations will always entail some degree of subjectivity and/or emotion. This subjectivity is one of the core reasons why short-term directional moves in the Dow, S&P 500, and Nasdaq Composite are virtually impossible to predict with ongoing accuracy.

But there is a valuation measure, introduced by economists in the late 1980s, that can cut through this emotion and subjectivity to provide apples-to-apples valuation comparisons across the broader market. I'm talking about the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio).

The beauty of the Shiller P/E Ratio is that it's based on average inflation-adjusted earnings over the previous 10 years, rather than trailing 12-month earnings, as with the traditional P/E ratio. Encompassing a decade's worth of earnings history ensures that recessions can't skew the Shiller P/E or adversely affect its usefulness.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt

— Barchart (@Barchart) July 11, 2026

The S&P 500's Shiller P/E Ratio has averaged 17.4 when backtested to January 1871. As of the closing bell on Aug. 24, the Shiller P/E clocked in at 41.84, approximately 140% above its nearly 156-year average and a stone's throw from its current bull market high of 42.84, set on June 1.

CAPE Ratios above 40 are extremely rare. Over nearly 156 years of backtesting, the S&P 500's CAPE Ratio has exceeded 40 during a continuous bull market just three times, including the present:

• January 1999 – September 2000: In the lead-up to the bursting of the dot-com bubble, the S&P 500's CAPE Ratio peaked at 44.19 (December 1999).
• January 2022: During the first week of January 2022, just before the 2022 bear market took shape, the Shiller P/E Ratio leaped just above 40.
• May 2026 – present day: The S&P 500's CAPE Ratio has prominently vacillated between the low 40s and its bull market high of 42.84.

It's what happened after each of the previous two events that should concern investors. After the Shiller P/E hit its all-time high, the dot-com bubble erased 49% and 78% of the S&P 500's and Nasdaq Composite's values, respectively. Meanwhile, the 2022 bear market saw the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite lose a fifth, quarter, and third of their respective values.

To be clear, a historically high CAPE Ratio doesn't guarantee that stocks will plunge, nor can it pinpoint when the music will stop on Wall Street. But based solely on what history has shown us, premium stock valuations aren't sustainable over long periods. Once the Shiller P/E Ratio reaches 40 (or higher), it's not a matter of if but when the stock market pays the price.

Image source: Getty Images.

History is a two-way street

The good news for Wall Street and the investing community is that historical foreshadowing isn't a one-way street. While there are several instances in which past events have forecast substantial downside in the Dow, S&P 500, and Nasdaq Composite, there's an extensive data set that shows patience and optimism pay off handsomely on Wall Street.

For example, the analysts at Crestmont Research update a data set annually that calculates the trailing 20-year total return, including dividends, of the benchmark S&P 500 since 1900. Even though the S&P 500 didn't exist at the start of the 20th century, Crestmont's analysts have tracked the performance of its components in other major indexes since 1900.

Crestmont's analysis yielded 107 separate rolling 20-year timelines (1900-1919, 1901-1920, and so on, through 2006-2025), all of which produced a positive annualized total return. In simpler terms, if an investor had, hypothetically (since index funds didn't begin trading on U.S. stock exchanges until 1993), invested in an S&P 500-tracking index fund at any point between 1900 and 2006 and held for 20 years, they would have generated a profit every single time.

Crestmont Research's data set demonstrates the value of time in the market, as opposed to trying to time market moves, as well as the power of perspective and optimism. No matter the headwinds thrown investors' way, the S&P 500 was always higher 20 years later, including dividends.

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft

— Bespoke (@bespokeinvest) May 30, 2026

Bespoke Investment Group offered similar findings in a May 2026 post on X (formerly Twitter), where analysts compared the calendar-day length of every S&P 500 bull and bear market since the start of the Great Depression (September 1929).

On the one hand, the average S&P 500 bear market has lasted 286 calendar days (about 9.5 months). Perhaps even more noteworthy, no bear market has endured longer than 630 calendar days.

At the other end of the spectrum, Bespoke Investment Group calculated the average of 27 S&P 500 bull markets over the last 97 years to be 1,023 calendar days, or approximately 3.6 times longer than the typical bear market. Further, just over half (14) of these bull markets lasted longer than the aforementioned lengthiest bear market.

Statistically, long-term optimists have the upper hand on Wall Street. Although bull markets aren't indefinite, and a historically pricey stock market foreshadows potential disaster in the presumed not-too-distant future, nothing suggests the Dow, S&P 500, and Nasdaq Composite won't continue to climb over the long run.

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.

What's faster than a speeding bullet, more powerful than a locomotive, and able to leap tall buildings in a single bound? No, it's not Superman. It's the stock market anytime President Donald Trump is in the White House.

During Trump's first, non-consecutive term, the timeless Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and technology-propelled Nasdaq Composite (NASDAQINDEX:^IXIC) rallied 57%, 70%, and 142%, respectively. Since the president's second-term inauguration, these indexes have gained an additional 23%, 28%, and 32%, respectively (as of the closing bell on Aug. 24).

While the stock market typically advances under most presidents, the annualized returns of the Dow, S&P 500, and Nasdaq Composite are higher under Trump than under most presidents since the late 1890s.

The stock market has soared under President Trump. Image source: Official White House Photo by Shealah Craighead, courtesy of the National Archives.

But these gains under President Trump have also occurred amid historic bouts of volatility. During the unforeseen COVID-19 crash, the broad-based S&P 500 shed 34% of its value in 33 calendar days. Likewise, the "tariff tantrum" in early April 2025 witnessed the S&P 500 lose more than 10% of its value over just two trading sessions.

It begs the question: Is a stock market crash imminent under President Donald Trump?

While short-term directional moves in Wall Street's major stock indexes can't be guaranteed, 85 years of historical precedent offers an answer -- and investors might not be thrilled with it.

Trump's second term has been packed with geopolitical/major events

Since Donald Trump's inauguration on Jan. 20, 2025, he's been somewhat of a magnet for major geopolitical and historical events.

There was the aforementioned tariff tantrum, involving the April 2025 unveiling of sweeping global tariffs and higher reciprocal tariffs on dozens of countries deemed to have unfavorable trade imbalances with America. The U.S. also bombed nuclear facilities in Iran in June 2025, removed Venezuela's President, Nicolas Maduro, in early January 2026, and began military operations against Iran at the end of February 2026.

Here's a list of major geopolitical events since WWII.

Up a median of 5% six months later. All of them felt really bad at the time. pic.twitter.com/Jb3QXL0L05

— Ryan Detrick, CMT (@RyanDetrick) February 28, 2026

Shortly after the Trump-led Iran war began, Carson Group's Chief Market Strategist, Ryan Detrick, published a data set to X (formerly Twitter) examining the performance of the benchmark S&P 500 at various intervals following more than three dozen stock market shock events since the start of 1940.

Using data from S&P Dow Jones Indices, CFRA, and Carson Group's own research, Detrick and his team determined that, on average, the S&P 500 gained 3% one year after a market shock event officially began. Furthermore, the S&P 500 was higher following 65% of qualifying shock events.

Although a 3% gain is well below the long-term annualized return of the broad-based S&P 500, it's nevertheless a positive outcome amid heightened periods of uncertainty.

Based solely on the headline figure from Detrick's data set, a stock market crash doesn't appear likely under President Trump. However, there's a bit more nuance to Carson Group's data set than meets the eye.

Image source: Getty Images.

One scenario makes stock market crashes likelier, and Trump is overseeing it right now

Though nearly two-thirds of geopolitical and major market shock events spanning more than 85 years were followed by S&P 500 gains after 12 months, several of the losing events shared a common theme: energy supply disruption.

In October 1956, Britain, France, and Israel invaded Egypt to regain control of the Suez Canal, which Egypt had nationalized in July 1956. The closure of the Suez Canal disrupted oil shipments from the Middle East to Western Europe. The S&P 500 was lower by nearly 12% one year later.

The Oil Embargo of 1973 was an even bigger shock to Wall Street. Arab members of OPEC stopped selling oil to the U.S. and other allies of Israel, leading to a petroleum shortage and substantially higher fuel costs. The benchmark S&P 500 lost 35% of its value over the next year.

The ongoing Iran war features the largest energy supply disruption in modern history. Shortly after Trump approved military attacks against Iran, the latter closed the Strait of Hormuz to virtually all maritime traffic. This effectively halted the daily movement of a fifth of the world's petroleum liquids (about 20 million barrels/day).

Energy supply shocks are the one geopolitical/major historical event that history shows Wall Street struggles to put in the back seat. While this doesn't mean a stock market crash is in any way imminent or guaranteed under President Trump, the likelihood of an elevator-down move amid the largest energy disruption in modern history is certainly heightened.

64.

As in 64 consecutive months with US core inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation.

Kevin Warsh talks a big game, but talk is cheap. The Fed should have hiked rates yesterday and ended QE. pic.twitter.com/HvimqfW6WW

— Charlie Bilello (@charliebilello) July 30, 2026

Making matters worse, evidence is mounting that Iran-war-driven Trumpflation has spilled beyond the energy sector. The price stickiness of Core Personal Consumption Expenditures, which excludes volatile food and energy costs and provides economists with a clearer view of long-term price trends, has been stuck at roughly 3.3%-3.4% for months. This suggests that businesses are incurring higher production and transportation costs as a result of the Strait of Hormuz's closure, which are being passed on to consumers.

If Trump-driven inflation (i.e., Trumpflation) entrenches itself in the broader economy, persistently elevated inflation would make outsize stock market returns unlikely.

While there's no imminent threat of a stock market crash under Donald Trump, the historical puzzle pieces do suggest a heightened likelihood of an elevator-down move and/or a substantial pullback in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.

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.

With roughly two-thirds of 2026 now in the books, investors have plenty of reasons to smile. The iconic Dow Jones Industrial Average (DJINDICES:^DJI), broad-based S&P 500 (SNPINDEX:^GSPC), and innovation-inspired Nasdaq Composite (NASDAQINDEX:^IXIC) have all catapulted to several record highs this year. We've also witnessed the largest-ever initial public offering take shape.

But despite all three stock indexes climbing to fresh highs, things are far from perfect on Wall Street. Specifically, the bond market is sending investors a warning sign that simply can't be swept under the rug.

Since the start of the year, long-duration Treasury bond yields (10-, 20-, and 30-year bonds) have noticeably risen. The 30-year yield recently hit a 19-year high, while the 10-year yield has approached levels last seen during the financial crisis.

Treasury Secretary Scott Bessent aims to tackle rapidly rising long-duration bond yields. Image source: Official White House Photo by Abe McNatt.

Although President Donald Trump's Administration has announced plans to reduce long-duration Treasury bond yields, a trio of factors strongly suggests that these efforts will be a spectacular failure.

The Trump administration aims to lower long-term Treasury bond yields

Since President Trump's second, non-consecutive term began, he's been a vocal critic of the Federal Reserve's monetary policy. More specifically, he called on former Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) to aggressively lower interest rates. Although the Powell-led Fed did lower interest rates six times from September 2024 to December 2025, it simply wasn't enough to appease the president.

Trump has previously opined that interest rates should be 1% or lower. He firmly believes that lower interest rates can fuel job creation, innovation, and economic growth. But perhaps most importantly, lower interest rates would make it considerably easier for the U.S. government to service its national debt.

On Aug. 19, U.S. Treasury Secretary Scott Bessent announced that the Treasury Department would, at a minimum, double its scheduled long-duration bond repurchases from $2 billion to $4 billion.

Historic intervention is coming.

Despite several announcements by the US Treasury about imminent intervention, yields still won't fall.

This includings doubling buybacks to $4+ billion per operation and the Treasury considering using its $950 billion General Account for these…

— The Kobeissi Letter (@KobeissiLetter) August 24, 2026

Not long thereafter, it was reported that the Treasury Department might consider using some of the $950 billion accumulated in its General Account to conduct more aggressive long-term bond buybacks.

Since bond prices and yields are inversely related, purchasing bonds would be expected to drive up prices and weigh on yields. Higher long-term Treasury bond yields can translate into higher corporate borrowing costs, and, in the case of the 10-year, can increase mortgage rates. If the U.S. Treasury increases its bond-buying program, it would, in theory, lower long-term bond yields and make borrowing less costly for businesses and housing more affordable for the public.

The Treasury Department's bond-buying program is doomed from the start

While Bessent's plan might sound great on paper, the Trump administration's bond-market intervention has almost no chance of succeeding. There are three structural reasons why bond yields at the long end of the yield curve have soared this year, and none of these dynamics will change if the U.S. Treasury increases its scheduled long-duration bond buybacks.

Image source: Getty Images.

1. Entrenched Trumpflation is driving up long-duration bond yields

The first factor that'll render the Trump administration's bond-buying efforts moot is elevated inflation.

While a modest level of inflation is expected in an expanding economy, Trumpflation (inflation driven by President Trump's policies) is pushing prices noticeably higher. The president's tariffs have been pushing up consumer prices for more than a year.

However, the Iran war (and the ongoing closure of the Strait of Hormuz) is a much bigger contributor to elevated inflation, which hit a three-year high of 4.2% in May. The price stickiness of Core Personal Consumption Expenditures (PCE) suggests that Trumpflation has become entrenched in the broader economy and is no longer just an energy supply issue.

When inflation climbs well above the FOMC's long-term target of 2%, long-duration bond yields also rise. This happens because bond investors demand higher yields to offset the potential loss of buying power due to inflation. Any efforts by the Trump administration to lower long-term bond yields without a significant reduction in Core PCE would likely fail.

2. Fed Chair Kevin Warsh's removal of forward-looking guidance has unintended consequences

Secondly, reforms implemented by President Trump's handpicked Fed Chair, Kevin Warsh, will make it virtually impossible for the Treasury's bond-buying program to drive down yields.

During Warsh's May 22 swearing-in ceremony at the White House, he vowed to lead a reform-oriented Fed. To date, the biggest adjustment he's made is removing forward-looking guidance from FOMC meeting statements.

BREAKING: Fed Chair Kevin Warsh announces that the Fed has "dropped" forward guidance.

"Forward guidance is not the business we should be in," he says.

— The Kobeissi Letter (@KobeissiLetter) June 17, 2026

It's been customary for more than two decades for Fed chairs to include this guidance, which stated whether the FOMC was more likely to hike or cut interest rates as its next move. Generally, the more information and transparency equity and bond markets receive from the nation's central bank, the more orderly they are.

Warsh removed forward-looking guidance because he wanted Wall Street to react to real data and not rumors. The new Fed chair also felt that forward-looking guidance potentially constrained the FOMC's monetary policy.

But in removing this guidance, Warsh has made the bond market considerably more volatile. When the prevailing inflation rate is well above or below the FOMC's long-term 2% target, bond traders are more likely to anticipate policy moves at the long end of the yield curve. This bond market volatility isn't going away as long as Warsh withholds forward-looking guidance in FOMC statements.

3. Crippling national debt can't be swept under the rug

The third structural issue that'll make Bessent's announced bond-buying intervention a failure is America's unsightly national debt. On Aug. 19, U.S. total debt surpassed $40 trillion for the first time.

Federal deficits are nothing new for our country. With the exception of four years under former President Bill Clinton (1998-2001), the U.S. has run a federal deficit every year since 1970. These spending deficits have been especially pronounced over the last six years, with federal government spending outpacing income by $1.37 trillion to $3.1 trillion each year.

BREAKING: 🇺🇸 US national debt officially surpasses $40 trillion. pic.twitter.com/LUaSSnC3dK

— Watcher.Guru (@WatcherGuru) August 19, 2026

Soaring long-duration Treasury bond yields are, in part, a reaction to the perceived risk and unsustainability of America's rapidly rising national debt. Even though the U.S. has never failed to make its interest payments or redeem its debt obligations when they mature, rising long-duration yields indicate that bond traders want a juicier yield to assume the growing risks of America's crippling debt.

Even if the Treasury Department were to, hypothetically, throw the kitchen sink (its $950 billion General Account) at its bond-buying program, it would hardly make a dent in the nation's debt pile, and it wouldn't resolve structural issues with persistent federal deficits.

In other words, the U.S. Treasury's bond market intervention is pure theater that overlooks structural deficiencies (elevated inflation, crippling debt, and unsustainable federal deficits) that really need to be addressed.

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.

For the nearly 55 million retired workers who receive a monthly Social Security benefit, there are few, if any, annual announcements more anticipated than the program's cost-of-living adjustment (COLA).

Social Security's COLA is effectively a "raise" given to beneficiaries that's designed to offset the effects of inflation and ensure that Social Security income doesn't lose buying power over time. Hypothetically, if a large basket of goods and services regularly purchased by retirees were to increase in cost by 3% from the previous year, Social Security payouts would need to climb by a commensurate amount; otherwise, retirees wouldn't be able to purchase the same amount of those goods and services the following year.

Social Security's 2027 COLA is shaping up to be a mixed bag. On the one hand, President Donald Trump's policies are likely to supercharge next year's raise -- and who doesn't like a beefier monthly payout? However, this Trump bump-driven 2027 COLA comes with a serious unintended consequence that may be detrimental to existing and future beneficiaries.

Social Security's 2027 COLA is a mixed bag, courtesy of President Trump. Image source: Official White House Photo by Joyce N. Boghosian.

Donald Trump's policies can lead to an outsize Social Security raise in 2027

Social Security's annual cost-of-living adjustment closely reflects the prevailing inflation rate. While a modest level of inflation is expected in a growing economy, two of President Trump's policies -- tariffs and the Iran war -- are directly boosting the inflation rate.

In April 2025, Trump unveiled his self-proclaimed Liberation Day tariffs, which imposed sweeping global tariffs and higher reciprocal tariffs on dozens of countries that had unfavorable trade imbalances with America. Even though the U.S. Supreme Court struck down many of these tariffs in February 2026, the upward lift they provided on consumer prices led to a modest Trump bump for Social Security's 2026 COLA.

The same effect should be expected for next year's raise. Despite the Supreme Court invalidating Trump's Liberation Day tariffs, the president and his administration have used new justifications to impose sweeping global tariffs. Adding duties to select imported goods can increase domestic production costs and lift consumer prices.

The Trump-led Iran war is also directly affecting prices. Shortly after the president approved military operations against Iran in late February, the latter shut down the Strait of Hormuz to virtually all maritime traffic. This halted the movement of a fifth of the world's petroleum liquids, sending fuel prices soaring.

64.

As in 64 consecutive months with US core inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation.

Kevin Warsh talks a big game, but talk is cheap. The Fed should have hiked rates yesterday and ended QE. pic.twitter.com/HvimqfW6WW

— Charlie Bilello (@charliebilello) July 30, 2026

But the inflationary effects of the Iran war aren't confined to the energy sector. The price stickiness of Core Personal Consumption Expenditures suggests that Trumpflation (inflation driven by Donald Trump's policies) has reached the broader economy.

Accounting for the inflationary effects of the president's policies, The Senior Citizens League, a nonpartisan senior advocacy group, expects next year's COLA to reach 3.6%. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson predicts that Social Security's 2027 raise will clock in at 3.4%.

To put the average of these two estimates into perspective, a 3.5% Social Security raise in 2027 would be a tie for the seventh-largest percentage increase over the last 35 years. It would also secure a sixth consecutive year in which benefits rose by at least 2.5% -- a feat that hasn't been observed in 30 years.

Image source: Getty Images.

Annual Trump bumps are digging a bigger hole for Social Security

However, outsize Social Security raises come with potentially serious consequences for America's leading retirement program.

Since 1940, the Social Security Board of Trustees has published an annual report detailing the program's financial health. It allows anyone to see how Social Security generates income and track where those dollars are spent.

But what's arguably most valuable about the annual Trustees Report is the forward-looking projections. The Trustees account for a laundry list of variables when forecasting the program's long-term (75-year) solvency. Since 1985, every annual report has warned of a long-term unfunded obligation. In the 2026 Trustees Report, this unfunded obligation ballooned to $29.3 trillion.

However, the more immediate concern is the projected depletion of the Old-Age and Survivors Insurance trust fund's (OASI) asset reserves by the fourth quarter of 2032. The OASI is responsible for paying monthly benefits to retired workers and survivor beneficiaries.

The good news is that the OASI doesn't need a dime in its asset reserves -- the excess income collected since inception that's invested in special-issue, interest-bearing, government bonds, as required by law -- to continue paying benefits. The 12.4% payroll tax on earned income generates the lion's share of the income Social Security collects. As long as Americans keep working and paying their taxes, Social Security, as it's currently designed, can never go bankrupt.

US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts

But the sustainability of the program's existing monthly payout schedule, including COLAs, is very much at risk. If the OASI's asset reserves are exhausted by the fourth quarter of 2032, the Trustees estimate that sweeping benefit cuts of up to 22% may be necessary.

When the Trustees model their short- and long-term estimates, they do so using modest annual COLAs. The Trump bump-estimated 3.5% COLA in 2027 is anything but modest. While outsize raises may look great in beneficiaries' checking and savings accounts, these well-above-average COLAs can drain the OASI's coffers faster than initially expected.

To be clear, several ongoing demographic changes are almost entirely to blame for Social Security's financial shortcomings. Factors such as the retirement of baby boomers, increased longevity, rising income inequality, lower net legal migration into the U.S., and historically low birth rates have dug this hole for Social Security.

Nevertheless, Trump's policies aren't helping. If Social Security's 2027 COLA is as robust as independent estimates suggest, the OASI's projected timeline to sweeping benefit cuts may accelerate, yet again!

The Motley Fool has a disclosure policy.

Although the stock market tends to rise over multidecade periods, the annualized gains for the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) have been higher under President Donald Trump than under most presidents since the late 1890s.

A confluence of factors has worked wonders for Wall Street with Trump in the White House, including the evolution of artificial intelligence (AI), better-than-expected corporate earnings, and record S&P 500 share buybacks. Record highs for all three major indexes since early June prompted the president to declare that "the stock market is fantastic."

Trumpflation is becoming a broad-based economic concern. Image source: Official White House Photo by Daniel Torok.

While the Dow, S&P 500, and Nasdaq Composite have, thus far, climbed the proverbial wall of worry on Wall Street, headwinds are undeniably mounting for equities. Perhaps no concern is greater than that of inflation.

Although President Trump told the press that "prices are dropping fast" on Aug. 11, all important pricing data concerning Trumpflation (inflation that's specifically driven by the president's policies) tells a completely different story -- and it's not the best news for the high-flying stock market.

Headline inflation is dropping, but this doesn't tell the most important story

In an expanding economy, a modest level of inflation is perfectly normal. If the economy is firing on all cylinders, businesses are going to possess some degree of pricing power over their goods and services. Even the Federal Reserve targets a 2% long-term inflation rate, not 0%, because it recognizes that modestly rising prices are healthy for a growing economy.

Trouble can arise for the U.S. economy and stock market when the trailing 12-month (TTM) inflation rate deviates too far from the central bank's long-term target of 2%.

Trump: The country is doing well, prices are dropping fast, Iran is going absolutely fine, we control the Strait of Hormuz, and things are going great for our country. pic.twitter.com/XDUh6U08vP

— Acyn (@Acyn) August 12, 2026

Since President Trump's second term began, two of his policies have put upward pressure on TTM inflation: tariffs and the Iran war.

Trump and his administration have enacted several rounds of sweeping global tariffs, which are designed to protect American manufacturing jobs and allow U.S. products to be more price-competitive with those brought in from overseas. But adding duties to select unfinished goods can increase domestic manufacturing costs that are then passed on to consumers.

The more glaring source of inflation has been the Trump-led Iran war. Shortly after the president approved military operations against Iran on Feb. 28, the latter closed the Strait of Hormuz to virtually all maritime traffic. This action essentially halted the daily flow of 20 million barrels of petroleum liquids, sending fuel prices soaring.

Between February and May, TTM inflation catapulted from a modest 2.4% to a three-year high of 4.2%.

The partial silver lining for consumers is that headline inflation is dropping. Peace talks between the U.S. and Iran caused crude oil prices to plunge from their Iran war highs, leading to modest relief at the fuel pump. In June and July, headline inflation fell to 3.5% and 3.4%, respectively.

But headline inflation isn't telling the complete story. Based on one of the Federal Reserve's favorite inflation metrics, Trumpflation is digging in its heels.

Image source: Getty Images.

Consumer prices aren't going anywhere, thanks in part to Trumpflation

According to Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy costs and provides economists with a cleaner view of long-term price trends, prices aren't "dropping fast." In fact, they've hardly dropped at all.

After Core PCE inched to a nearly three-year high of 3.4% in May, it eased back to 3.3% in June. According to estimates from the Federal Reserve Bank of Cleveland's Inflation Nowcasting tool (as of Aug. 21), Core PCE is projected to hold firm at roughly 3.3% in July and August.

The stickiness of consumer prices, sans energy and food costs, suggests that the Fed's nightmare scenario has occurred. Namely, that Trumpflation has entrenched itself in the broader economy. What had been an energy supply issue has evolved into a broad-based concern.

64.

As in 64 consecutive months with US core inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation.

Kevin Warsh talks a big game, but talk is cheap. The Fed should have hiked rates yesterday and ended QE. pic.twitter.com/HvimqfW6WW

— Charlie Bilello (@charliebilello) July 30, 2026

For example, shutting down the Strait of Hormuz impacts much more than just fuel prices. Select companies have been forced to reroute shipments, adjust their supply chains, or alter their transportation altogether. These adjustments are costly and are expected to be passed on to consumers.

Additionally, petroleum-based products, such as plastics and synthetic polymers, have increased in price since the start of the Iran war. Businesses have the choice of absorbing these higher expenses and hurting their margins or passing these costs on to their customers.

The price stickiness of Core PCE suggests that Trumpflation will become a long-term nuisance for consumers, the Fed, and the stock market. With the 30-year Treasury bond yield recently soaring to a 19-year high, the message is clear that the bond market expects Fed Chair Kevin Warsh and the Federal Open Market Committee to eventually raise rates.

The prospect of persistently elevated inflation and potentially higher interest rates is terrible news for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. All three indexes have been driven to new heights by the AI infrastructure build-out, which has been fueled in part by debt financing. If it becomes costlier to fund the AI data center build-out, a historically expensive stock market may end up paying the price.

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 evolution of artificial intelligence (AI) has been the lead catalyst responsible for lifting the benchmark S&P 500 to all-time highs. Empowering software and systems with the tools to make split-second, autonomous decisions is a multitrillion-dollar opportunity that businesses don't want to miss.

While most Wall Street analysts expect the AI revolution to increase corporate growth rates and push stocks higher, optimism isn't universal. According to select Wall Street analysts, two of the hottest, high-flying AI stocks, Palantir Technologies (NASDAQ: PLTR) and Tesla (NASDAQ: TSLA), can lose more than half their value.

Image source: Getty Images.

Palantir Technologies: Implied downside of 54%

AI-driven software-as-a-service (SaaS) provider Palantir is one of the stock market's most polarizing tech companies.

On the one hand, the company's Gotham SaaS platform has no large-scale competition. The federal government and its immediate allies rely on Gotham to plan and execute military missions. With limited competition, Gotham is driving strong double-digit sales growth, with contracts often locked in over four or five years.

On the other hand, analysts like Brent Thill at Jefferies see a company that's practically priced for perfection in an imperfect industry. Thill has a sell rating on Palantir and an $80 price target, implying downside of up to 54%.

While Palantir's sustainable moat warrants a premium, history shows that no company has sustained a price-to-sales (P/S) ratio above 30 for an extended period. CEO Alex Karp's company entered 2026 at a P/S ratio above 100 and closed out the Aug. 25 trading session at a trailing 12-month P/S ratio of 72. It's unlikely that this valuation premium is sustainable, which suggests Thill's low-water price target could one day become a reality.

Image source: Tesla.

Tesla: Implied downside of 63%

But the potential disaster du jour among AI stocks, based on Wall Street's price targets, comes courtesy of electric-vehicle (EV) maker Tesla. Wells Fargo analyst Colin Langan maintains a sell rating on Tesla stock and foresees shares heading to $130, which is 63% below its closing price on Aug. 25.

Although Tesla revolutionized the EV industry and has been profitable on a recurring basis for six years and counting, Langan has been critical of the company's shrinking vehicle margin. Aggressive EV competition has prompted Elon Musk's company to slash prices on several occasions. While these price cuts have eventually worked out inventory kinks, they've come at the detriment of the company's EV margin.

Valuation is another clear concern raised by Wells Fargo's analyst. Whereas traditional auto stocks typically trade at high single-digit to low double-digit price-to-earnings ratios, Tesla is valued at 198 times estimated earnings per share in 2026. The problem with such an aggressive valuation multiple is that Tesla is only expected to grow its sales by 12% this year.

Even though Langan didn't mention it in his firm's research note, I believe it's worth noting that Tesla CEO Musk has a terrible habit of overpromising and underdelivering. Though Musk has overseen the launch of several successful EVs and pushed Tesla into energy generation and storage products, several of his promises have gone unfulfilled.

For example, proclaiming there'd be 1 million robotaxis on public roadways by the end of 2020 and suggesting Level 5 full self-driving was "one year away" for more than a decade are promises built into Tesla's share price that have never materialized.

Wells Fargo is an advertising partner of Motley Fool Money. Sean Williams has positions in Wells Fargo. The Motley Fool has positions in and recommends Jefferies Financial Group, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.

This is a truly groundbreaking year for Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB). For the first time in well over half a century, the trillion-dollar Berkshire isn't being led by billionaire Warren Buffett. Following the Oracle of Omaha's retirement as CEO on Dec. 31, the torch was officially passed to his protégé, Greg Abel.

Abel hasn't wasted any time transforming Berkshire Hathaway's $359 billion investment portfolio. In addition to jettisoning 16 holdings in the first quarter, he's rearranged the puzzle pieces of his company's top-five positions. Longtime holdings Coca-Cola (NYSE: KO) and Bank of America (NYSE: BAC) have both been knocked down a peg, with the new apple of Abel's eye, Google parent Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), officially becoming Berkshire's No. 3 position.

Warren Buffett retired as Berkshire Hathaway's CEO on Dec. 31. Image source: The Motley Fool.

Coca-Cola isn't going anywhere, but BofA may be a different story

Despite ceding its spot as Berkshire's third-largest holding, Coca-Cola isn't going anywhere. Coke was labeled as an "indefinite" holding by former CEO and current board chair Warren Buffett, and Abel has vowed to (more or less) adhere to the same investing principles that the Oracle of Omaha followed.

The real beauty of Berkshire's stake in Coca-Cola is its jaw-dropping yield on cost. Coca-Cola is Berkshire's longest-tenured holding (since 1988) and sports an ultra-low cost basis of around $3.25 per share. Given that Coca-Cola has increased its dividend for 64 consecutive years and is currently doling out $2.12/share annually, Berkshire's yield relative to its cost basis is an astounding 65%!

Suffice it to say, Coca-Cola isn't going anywhere.

Bank of America is another story. Although Warren Buffett has always been a huge fan of financial stocks, BofA isn't the bargain it once was. Since Berkshire's former CEO initially took a position in Bank of America's preferred stock in August 2011, its common stock has vaulted from a 62% discount to book value to a 59% premium to book value.

Perhaps it's no surprise that Berkshire's bosses have pared down their company's stake in BofA for eight consecutive quarters.

Image source: Getty Images.

There's a new apple of Abel's eye

However, the biggest change observed under Greg Abel has been the relentless buying of Alphabet stock. Including an announced $10 billion private placement, Abel green-lit the purchase of $17 billion of Alphabet's Class A (GOOGL) and Class C (GOOG) stock, combined, in the second quarter.

As of the closing bell on Aug. 25, the market value of Berkshire's Alphabet stock was $16 million more than its stake in Coca-Cola.

Alphabet becoming Berkshire's No. 3 holding is in part a function of its virtual monopoly status. Google has accounted for 89% to 93% of global internet search engine traffic over the last decade, and YouTube is the second-most-visited social site behind Google. In other words, Alphabet is ideally positioned to capitalize on a growing advertising market.

$GOOG Alphabet Q2 FY26:

• Revenue +24% Y/Y to $119.8B ($2.8B beat).
• Operating margin 34% (+2pp Y/Y).
• $98B net gains from equity investments.

☁️ Google Cloud:
• Revenue +82% Y/Y to $24.8B
• Operating margin 36% (+15pp Y/Y).

▶️ YouTube ads +13% to $11.1B pic.twitter.com/seYlITzfg6

-- App Economy Insights (@EconomyApp) July 22, 2026

But it's the company's artificial intelligence (AI) ambitions that appear to have Berkshire's new boss intrigued. Since Alphabet integrated generative AI and large language model capabilities into Google Cloud, the world's No. 3 cloud infrastructure services platform by total spend, sales growth has gone parabolic. Sales for this high-margin segment skyrocketed 82% in the June-ended quarter.

Whereas Apple was Warren Buffett's foundational puzzle piece for the last decade, Alphabet may hold that role for Greg Abel going forward.

Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Alphabet and Bank of America. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.

This has been a history-packed year in several respects. We've watched the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite rally to new highs and welcomed a new Fed chair for only the 17th time in the central bank's 113-year history.

But perhaps the most profound moment of 2026, thus far, has been Space Exploration Technologies' (SpaceX) (NASDAQ: SPCX) initial public offering (IPO). Elon Musk's SpaceX raised $85.7 billion from its debut, including the underwriters' overallotment, nearly tripling the previous largest-ever IPO cash raise. But SpaceX may not hold its crown for much longer, courtesy of artificial intelligence (AI) start-up, Anthropic.

Image source: Getty Images.

Anthropic's IPO may top $2 trillion

According to prediction markets, Kalshi and Polymarket, investors believe there's a greater likelihood that Anthropic will surpass SpaceX as the largest IPO of 2026.

As of Aug. 26, traders on Polymarket placed a 63% chance of Anthropic topping SpaceX, the latter of which was valued at $1.77 trillion when it priced approximately 555.6 million shares at $135 each. To put this into perspective, Polymarket's traders assigned almost no chance of Anthropic unseating SpaceX four weeks ago.

JUST IN: Anthropic has overtaken SpaceX as the favorite to be 2026's largest IPO by market cap.

63% chance. pic.twitter.com/TKGKiYMUMD

-- Polymarket Money (@PolymarketMoney) August 26, 2026

If you're wondering what happened over the last four weeks, look no further than the latest sales update. According to Bloomberg, the developer of the Claude large language model has seen its annual run rate sales catapult from around $9 billion at the end of 2025 to $65 billion by the end of July.

Anthropic has several high-profile, recurring clients, including social media maven Meta Platforms and software kingpin Microsoft, among others. It's also backed by some well-known investors, including Amazon and Alphabet, whose stakes in Anthropic total approximately 21% and 14%, respectively.

Unfortunately, AI start-up Anthropic, which may target up to a $2 trillion valuation, faces many of the same historical headwinds as SpaceX.

Image source: Getty Images.

Chasing after hot IPOs rarely works out for retail investors

Arguably, the biggest question mark for Anthropic, which carries over from SpaceX's IPO less than three months ago, is how to justify its stratospheric valuation.

When SpaceX debuted, it was trading at north of 100 times its reported 2025 full-year sales. History shows that no company at the forefront of a game-changing technological trend has sustained a price-to-sales ratio above 30 over an extended period. Even based on its annual run rate sales, Anthropic would fall firmly in this historical bubble territory.

Speaking of bubbles, we've yet to see any game-changing technology over the last three decades avoid an early stage bubble-bursting event. These bubbles eventually burst because investors persistently overestimate the pace of adoption and/or optimization of new technologies. While spending on AI infrastructure is off the charts, we're likely several years away from businesses optimizing AI solutions.

Lastly, history teaches us that chasing hot tech-driven IPOs rarely works in retail investors' favor.

Moral of the story-do NOT chase hot IPOs

Year-1 average drawdown = 55%
Year-1 median drawdown = 54%

Table: Truist pic.twitter.com/xt864JD4Xh

-- Puru Saxena (@saxena_puru) June 3, 2026

According to data gathered by Trust Financial, the average year-one max drawdown for the 30 hottest tech-driven IPOs over the last 14 years is 55%! Thus far, SpaceX's peak-to-trough drawdown from its post-debut high is 54%! While retail investor buzz surrounding IPOs can be otherworldly, it rarely lasts more than a few weeks.

Even though prediction markets expect Anthropic to rewrite Wall Street's history books, retail investors would be wise to keep their distance.

Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Truist Financial. The Motley Fool has a disclosure policy.

Few events are more telling or exciting for the investing community than the quarterly filing of Form 13Fs with regulators. A 13F provides a concise snapshot of which stocks Wall Street's sharpest money managers, such as Pershing Square's billionaire boss, Bill Ackman, purchased and sold in the latest quarter.

But what really stands out about Ackman's portfolio is its concentration. While Ackman has always been a fan of consolidating his fund's capital into his best ideas, a substantial portion of those ideas are related to artificial intelligence (AI). As of the June-ended quarter, Uber Technologies (NYSE: UBER), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META) comprised 44.4% of Pershing Square's $19.5 billion investment portfolio.

Pershing Square's Bill Ackman is wagering big on AI stocks. Image source: Getty Images.

Pershing Square's billionaire boss is focusing on AI applications pioneers

Most billionaires can't seem to get enough of the hardware companies facilitating the AI infrastructure build-out for hyperscalers. However, Ackman is focusing his efforts on AI applications pioneers, and there are likely a couple of good reasons for this decision.

To begin with, history shows that every game-changing innovation for more than 30 years has experienced an early innings bubble-bursting event. If investors, yet again, overestimate the pace of adoption and/or optimization of Wall Street's hottest technology, AI infrastructure stocks would likely be hit hardest.

Stock market bubbles throughout history...

AI stocks now ~40% of the market. pic.twitter.com/RxSAh09k6F

-- Geiger Capital (@Geiger_Capital) May 8, 2026

In comparison, companies deploying or integrating AI solutions atop their foundational platforms wouldn't endure anywhere near the same level of disruption if the AI bubble were to burst. For instance, cloud services for Microsoft and Amazon should continue to grow unfazed, while Meta's social media platforms would remain premier targets for advertisers.

Additionally, all four of these businesses possess sustainable moats:

• Uber Technologies accounts for around three-quarters of the U.S. ride-share market, with AI used to match drivers to riders and dynamically price the company's services.
• Microsoft's Azure is the world's No. 2 cloud infrastructure services platform, while Windows remains the leading desktop operating system.
• Amazon is the undisputed global leader in online retail sales and is also the company behind the world's No. 1 cloud infrastructure services platform, Amazon Web Services.
• Meta attracted an average of 3.6 billion people to its family of apps each day in June, demonstrating the lure of its social media platforms.

These moats ensure sustainable market share and generally robust operating cash flow.

Most importantly, AI applications stocks are fundamentally attractive amid a historically pricey stock market. As of the closing bell on Aug. 21, the forward price-to-earnings (P/E) ratios for this quartet are as follows:

• Uber: 17
• Microsoft: 20.5
• Amazon: 24.7
• Meta: 16.2

Although Amazon's forward P/E might appear a bit pricey relative to the others, the company is trading at a historically low forward price-to-cash-flow ratio. Given that Amazon reinvests a huge chunk of its operating cash flow into its fastest-growing operations, cash flow is a potentially better metric for valuing the company.

While most billionaires have focused on AI infrastructure stocks, billionaire Bill Ackman is betting the proverbial farm on AI applications transforming the world.

Sean Williams has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

Some of Wall Street's savviest billionaire money managers oversee hundreds of trades per quarter. But in terms of sheer volume, these billionaires can't hold a candle to President Donald Trump's independent third-party money managers. According to data from the U.S. Office of Government Ethics (OGE), Trump's investment team placed in the neighborhood of 21,000 trades on the president's behalf in 2025.

The latest OGE financial disclosure for President Trump, filed in August, shows that north of 1,000 trades were completed in June 2026. Although the White House has stated that Trump and his family play no role in executing these trades, the newest financial disclosure reveals that between $1 million and $5 million was spent buying shares of Visa (NYSE: V), Mastercard (NYSE: MA), and Cintas (NASDAQ: CTAS) in June.

President Trump's independent third-party money managers were busy in June. Image source: Official White House Photo by Molly Riley.

Visa and Mastercard

Few publicly traded companies have been steadier buy-and-hold candidates since the financial crisis than payment facilitators Visa and Mastercard. Including dividends, Visa and Mastercard have returned 1,810% and 2,380%, respectively, since the start of 2010.

Gains of this magnitude don't occur by accident. They reflect Visa's and Mastercard's position as the United States' No. 1 and No. 2 payment processors by credit card network purchase volume. No other payment processors are particularly close to rivaling their share.

BREAKING: President Trump's financial disclosure report for the most recent period was just released.

Here is every stock / ETF he spent more than $1,000,000 buying in June:

-Berkshire Hathaway $BRK.B
-Cintas Corp $CTAS
-Visa $V
-Mastercard $MA
-International Treasury Bond... pic.twitter.com/XW3Rj82rkG

-- TrendSpider (@TrendSpider) August 22, 2026

Something else that's helped set Visa and Mastercard apart is the unwillingness of their respective management teams to move into lending. While some of their peers, such as American Express, can effectively double-dip and generate profits as payment networks and lenders (via credit cards), Visa and Mastercard have stuck solely to electronic payment facilitation.

The advantage of the latter is that Visa and Mastercard aren't required to set aside capital during challenging times to cover potential delinquencies and loan losses. This enables both companies to bounce back from recessions considerably faster than many of their peers.

Image source: Getty Images.

Cintas

Perhaps the bigger surprise is corporate identity uniform and business services provider Cintas being among Donald Trump's largest purchases in June. Including dividends, shares of Cintas have soared by more than 85,000% since its August 1983 initial public offering (IPO).

Cintas is effectively linked at the hip to the health of the U.S. economy. If the economy is growing and jobs are being created at a steady pace, there's a good likelihood that businesses will need uniforms, towels, mats, safety products, and so on. In short, Cintas directly benefits from economic expansions lasting disproportionately longer than recessions.

The outsize gains Cintas has enjoyed since its IPO also reflect management's appetite for acquisitions. Although most of the company's purchases have been of the bolt-on variety (i.e., designed to enhance existing operations or expand into a niche new product line), its March-announced cash and stock acquisition of UniFirst for $5.5 billion is a potential game changer.

If this combination, set to close later this year, gets the green light from regulators, it would expand Cintas's reach to approximately 1.5 million businesses in North America and result in substantial cost synergies.

American Express is an advertising partner of Motley Fool Money. Sean Williams has positions in Mastercard and Visa. The Motley Fool has positions in and recommends American Express, Mastercard, and Visa. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy.

In the words of Carson Group's Chief Market Strategist, Ryan Detrick: "Death, taxes, and Nvidia (NASDAQ: NVDA) beats on earnings are three things we can always count on in life."

For the 11th time in the last 12 quarters, the infrastructure backbone of the artificial intelligence (AI) revolution demolished Wall Street's consensus sales and profit expectations in its fiscal second quarter (ended July 26). Sales more than doubled to $96.2 billion, with (surprise, surprise!) the data center segment leading the way (117% year-over-year revenue growth).

Image source: Nvidia.

Furthermore, the company projects that full-year sales will skyrocket by another 70% in fiscal 2028. This compares to Wall Street's revenue growth estimates of 44%.

Oh boy. $NVDA guided next year revenue growth to at least 70%. The street was at 44%.

-- Gene Munster (@munster_gene) August 26, 2026

CEO Jensen Huang proclaimed, "AI has reached its inflection point" and made clear to investors that "demand is accelerating." Given Nvidia's aggressive innovation cycle -- it's aiming to bring a new advanced AI-accelerating chip to market annually -- and the compute superiority of its multiple generations of graphics processing units (GPUs), it's not a shock that Nvidia has made a habit of leapfrogging even the loftiest expectations on Wall Street.

Nevertheless, Nvidia's fiscal second-quarter operating results aren't perfect. The company's guidance highlighted a glaring flaw that Wall Street and investors have been content to overlook. However, history says that attempting to sweep this flaw under the rug would be a mistake.

Gross margin: This is as good as it gets for Nvidia

The glaring flaw in question is Nvidia's gross margin forecast for the fiscal third quarter.

In addition to Nvidia's GPUs sporting well-defined competitive advantages over its peers, Huang's company has benefited from persistent GPU supply shortages. Despite Taiwan Semiconductor Manufacturing's best efforts to expand its chip-on-wafer-on-substrate capacity, demand for GPUs continues to substantially outstrip their supply. The result is otherworldly pricing power for Nvidia and a historically high gross margin of 75% in the fiscal second quarter.

NVDA Gross Profit Margin (Quarterly) data by YCharts.

Nvidia's outlook calls for a fiscal third-quarter gross margin of 74% (+/- 50 basis points). A one percentage point sequential quarterly decline from what's nearly an all-time high might not seem like much, but it signals two very worrisome realities for Nvidia and its shareholders.

Firstly, this may be as good as it gets for Nvidia. You couldn't ask for a better set of circumstances for the face of the AI revolution. It has first-mover advantages, compute advantages, and a GPU supply shortage, all bolstering its pricing power. And yet, the company's outlook calls for a modest dip in its gross margin in the coming quarter.

Secondly, Nvidia's margin outlook speaks to the history of next-big-thing innovations. Even though none of the company's external or internal competitors are anywhere close to rivaling the compute capabilities of Blackwell Ultra or Vera Rubin, external competitors such as Advanced Micro Devices are ramping up GPU production. Likewise, several of Nvidia's top customers are internally developing AI chips that can occupy valuable data center real estate.

Even if Nvidia retains its compute advantages, the steady increase in available GPUs can offset the scarcity that's fueled its pricing power.

If this is as good as it gets for Nvidia's gross margin, the company's share price (vis-à-vis an underperformance of the benchmark S&P 500) may begin to reflect potential margin weakness.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

No trend has captured the attention or capital of investors quite like the rise of artificial intelligence (AI). Empowering software and systems with the tools to make autonomous, split-second decisions is a technology that PwC analysts foresee adding $15.7 trillion to the global economy by 2030.

It's also a technology that can make patient investors considerably richer. Based on the high-water price targets of two Wall Street analysts, chipmaker Advanced Micro Devices (NASDAQ: AMD) and Elon Musk's Space Exploration Technologies (SpaceX) (NASDAQ: SPCX) can skyrocket up to 484%!

Image source: Getty Images.

Advanced Micro Devices (AMD): Implied upside of 164%

You won't find a bigger cheerleader for AMD on Wall Street than analyst Tristan Gerra of Baird. Gerra doubled his firm's price target for the company in late July from $625 per share to $1,250, implying up to 164% upside from where shares closed out the Aug. 21 trading session.

Central to Gerra's thesis is the potential for AMD's Instinct graphics processing units (GPUs) to chip away at Nvidia's industry-leading data center market share. Gerra estimates that AMD's AI GPU platform can reach $147 billion in sales by 2030, accounting for roughly 15% of the data center accelerator addressable market.

$AMD | Baird's Tristan Gerra on 12 months his $1,250 PT🚨

Baird analyst Tristan Gerra raised his 12-month price target on Advanced Micro Devices (@AMD ) to $1,250 from $625 while maintaining an Outperform (Buy) rating. This became the Street-high target at the time.

The upgrade... https://t.co/e5J8boeFJs pic.twitter.com/nMUyafccF6

-- Mike (@MikeLongTerm) August 17, 2026

In particular, Gerra highlighted the AMD Helios rack-scale solution as a viable alternative to Nvidia for Wall Street's most influential hyperscalers.

But AMD's biggest advantage is on the pricing front. Even after raising its GPU prices to account for insatiable enterprise demand, the company's AI hardware comes in at a discount to Nvidia's GPUs. This perceived value proposition can bolster AMD's stock.

However, given the historical likelihood that AI will eventually endure a bubble-bursting event, a price target of $1,250 may be wishful thinking.

Image source: Getty Images.

SpaceX: Implied upside of 484% (by 2031)

Although Musk's SpaceX isn't just an AI company, its prospectus estimates that $26.5 trillion of its $28.5 trillion addressable market comes from AI. Perhaps it's no surprise that Raymond James Financial analyst Brian Gesuale sees shares rocketing to the moon.

According to Gesuale, Space Exploration Technologies can launch to $800 by 2031, representing up to 484% upside from where shares closed out the Aug. 21 trading session. For those of you keeping score at home, this would value SpaceX at approximately $10.5 trillion.

$SPCX-SPACEX COULD SOAR 440%, SAYS RAYMOND JAMES

Raymond James launched SpaceX coverage with a Strong Buy rating and a Street-high $800 target, implying 440% upside.

The bullish outlook is driven by Starship, Starlink, and SpaceX's potential as a global infrastructure giant....

-- *Walter Bloomberg (@DeItaone) July 9, 2026

Gesuale's model projects full-year sales catapulting from an estimated $38.5 billion in 2026 to around $837 billion in 2031. Five years from now, Raymond James' analyst believes SpaceX can generate $696 billion in EBITDA. For this otherworldly growth to take shape, Gesuale sees SpaceX successfully scaling up Starship and launching massive data centers in space.

While CEO Elon Musk is great at captivating audiences with his visions, he has a poor track record of delivering on them. Several of his core promises at Tesla, where he's also CEO, have gone unfulfilled, and that may be the case, once again, with SpaceX.

Furthermore, SpaceX isn't particularly close to validating its operating model's sustainability. The data center expansion at xAI is gobbling up a boatload of capital, and SpaceX's combined operations are still losing money. More than likely, SpaceX will continue to lean on bond and/or dilutive stock offerings to fund its expansion, which may come at the detriment of its existing shareholders.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

For the first time in well over half a century, Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) entered the year in uncharted territory. The retirement of CEO Warren Buffett on Dec. 31 meant his longtime understudy, Greg Abel, would oversee day-to-day operations and the company's $358 billion investment portfolio.

Abel hasn't wasted any time making his presence felt. He completely overhauled Berkshire's portfolio in the first quarter and continued making sizable changes in the June-ended quarter. As of Aug. 20, Berkshire has a more tech-oriented portfolio, with approximately 30% of the company's invested assets tied up in just two preeminent artificial intelligence (AI) stocks: Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG).

Warren Buffett retired as Berkshire Hathaway's CEO on Dec. 31. Image source: The Motley Fool.

Apple: $71 billion (19.8% of invested assets)

As has been the case for quite some time, Apple remains Berkshire Hathaway's largest position.

When Warren Buffett first began adding shares of Apple in early 2016, he did so not as a tech-focused investor. Rather, he marveled at consumers' incredible loyalty to the brand and their willingness to pay a premium for its physical devices. Apple is among a small handful of influential businesses that are very successful in keeping consumers within their product and service ecosystem.

But this stalwart company is evolving, and AI is very much part of its future. In addition to Apple's emphasis on higher-margin and loyalty-driving subscription services, the company launched Apple Intelligence for its physical devices less than two years ago. This tech relies on generative AI and your personal preferences to simplify tasks, such as writing and summarization tools.

The expectation is that Apple Intelligence will bolster demand for iPhone, iPad, and Mac, leading to higher sales and enhanced customer loyalty. With Apple trading at a historically expensive forward price-to-earnings ratio of 33, the company will need its AI investments to pay off.

Image source: Getty Images.

Alphabet: $36 billion (10.1% of invested assets, including both share classes, GOOGL and GOOG)

However, the bigger storyline of Abel's tenure has been his aggressive purchasing of both classes of Alphabet stock. With roughly $17 billion spent buying shares of Google's parent company in the second quarter, Alphabet is now Berkshire's fourth-largest position (as of Aug. 20).

Both Abel and his predecessor appreciate businesses with sustainable moats, and that's precisely what Alphabet delivers. Google held a 91% share of global internet search traffic in July, according to GlobalStats. Meanwhile, YouTube is the second-most-visited social site on the planet. Collectively, Alphabet draws in online advertisers like nobody's business.

GOOGLE'S $GOOGL Q2 EARNINGS HIGHLIGHTS

- Google total revenue: +24% YoY
- Search & Other Ads: +17% YoY
- Google Cloud: +82% YoY, backlog now at $514B
- 1P Model APIs: ~22B tokens per minute, up from 16B+ last quarter
- YouTube Ads: +13% YoY
- Gemini App: 950M monthly active... pic.twitter.com/cUdBZI9a6C

-- Evan (@StockMKTNewz) July 22, 2026

But it's the company's AI operations that are expected to drive the bulk of its operating cash flow growth going forward. Ever since Alphabet began integrating generative AI and large language model solutions into Google Cloud, sales for this high-margin segment have skyrocketed. Google Cloud's revenue surged 82% in the second quarter, with annual run rate sales now topping $99 billion.

The last two quarters suggest that Berkshire Hathaway's new boss has found his version of Apple in Alphabet. Although Google's parent company isn't as cheap as it's been in recent years, its sustainable advertising moat and otherworldly AI sales growth clearly have Abel's attention.

Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.

It's been a history-packed year for the stock market, with the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) catapulting to new highs and Space Exploration Technologies (SpaceX) rewriting Wall Street's record books with the largest-ever initial public offering.

But the highlight of 2026 might just be Kevin Warsh being sworn in as only the 17th Fed chair in the central bank's nearly 113-year history.

Fed Chair Warsh and the FOMC may be forced into action. Image source: Official White House Photo by Daniel Torok.

Warsh has wasted little time shaking things up. In his three months at the helm, he's shelved forward-looking guidance in Federal Open Market Committee (FOMC) meeting statements and has seemingly established price stability as the central bank's top priority.

However, the one thing Warsh and his FOMC colleagues haven't done is take any action amid persistently elevated inflation... and that's a mistake, according to the bond market.

Bond yields are soaring for two very good reasons

Treasury bond yields at the long end of the yield curve (10-, 20-, and 30-year bonds) have been steadily climbing throughout the year, with the 30-year yield reaching levels last seen during the financial crisis. Despite Treasury Secretary Scott Bessent announcing plans last week to double bond repurchases, yields keep climbing.

One reason the long end of the yield curve is tipping the scales at a 19-year high is America's staggering debt pile. Last week, total debt surpassed $40 trillion for the first time. Higher yields signal that massive federal deficits aren't sustainable.

BREAKING: US June PCE inflation, the Fed's preferred inflation metric, falls to 3.7%, in-line with expectations.

Core PCE inflation fell to 3.3%, the second highest reading since October 2024.

US inflation continues to run at nearly double the Fed's 2% target.

-- The Kobeissi Letter (@KobeissiLetter) July 30, 2026

But the bigger catalyst is, arguably, Trumpflation. President Donald Trump's tariffs and the effects of the Iran war are increasing consumer prices. Worse yet, the price stickiness of Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy costs, indicates that the effects of Trumpflation have spread well beyond the energy sector.

Even though headline inflation dropped to 3.4% in July from a three-year peak of 4.2% in May, Core PCE implies that Trumpflation is now entrenched in the broader economy.

Image source: Getty Images.

The bond market wants Kevin Warsh and the FOMC to act

When Fed Chair Warsh removed forward-looking guidance from FOMC statements, he inadvertently increased volatility in the bond market. With the prevailing inflation rate well above the Fed's long-term target of 2%, bond traders have responded by selling bonds and notably increasing yields.

In other words, the bond market has been increasing long-term borrowing costs and modestly tapping the brakes on inflation, all without the Fed altering its monetary policy.

But the bond market can't deliver price stability on its own. The fact that long-duration Treasury yields were higher just days after Bessent announced the Treasury Department's bond market intervention signals that the bond market demands action from Warsh and the FOMC.

The FOMC held rates steady, and the vote was 9-3.

Three bank presidents dissented in favor of a quarter-point rate increase.

It was the first time since 2016 that there were three dissents in the same direction over a policy change. pic.twitter.com/OBnwLJuUmr

-- Nick Timiraos (@NickTimiraos) July 29, 2026

At the July 28-29 FOMC meeting, three regional presidents dissented in favor of a quarter-point rate hike. It's the first time a new Fed chair has faced at least three dissents in 56 years! Policymakers are divided over the lasting impacts of Trumpflation and have thus far been unwilling to act. However, for Fed Chair Warsh to deliver on his repeated promise of price stability, raising interest rates may be the only solution.

Higher borrowing costs could be a nightmare scenario for a historically expensive stock market that's reliant on debt financing to fuel the artificial intelligence infrastructure build-out. Nevertheless, action may be necessary to satiate a clearly unnerved bond market.

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.

Although the peak of earnings season -- the six-week period in which most S&P 500 companies report their quarterly operating results -- is in the rearview mirror, what's arguably the most important earnings report of the entire quarter is set to be unveiled after the closing bell tomorrow, Aug. 26.

Wall Street's largest public company, Nvidia (NASDAQ: NVDA), is set to lift the hood on its fiscal second-quarter operating results. Given that Nvidia's graphics processing units (GPUs) are the backbone of the artificial intelligence (AI) data center build-out, the company's sales, profits, margins, and guidance have a significant bearing on this game-changing technology.

While Nvidia should deliver another outstanding report on Aug. 26, the stars appear to be aligning for yet another pullback.

Image source: Nvidia.

Nvidia usually crushes Wall Street's consensus

If Nvidia is anything, it's consistent. The company has surpassed Wall Street's consensus earnings per share estimate in 10 of the last 11 quarters by an average of almost $0.06 per share.

Additionally, Nvidia's fiscal second-quarter sales are expected to have surged 97% to a hair over $92 billion. Given that many of Wall Street's most influential AI stocks have blown past consensus expectations, Nvidia's sales projections have been steadily climbing.

NVDA Gross Profit Margin (Quarterly) data by YCharts.

It's certainly not hard to understand why Nvidia has investors excited. The company's several generations of GPUs, including Hopper, Blackwell, Blackwell Ultra, and Vera Rubin, are unrivaled on a compute basis. Businesses have demonstrated a willingness to pay a premium for Nvidia's AI hardware, lifting the company's gross margin comfortably into the mid-70% range.

Furthermore, demand for GPUs continues to outpace their supply by a significant margin. Even with concerted efforts by Taiwan Semiconductor Manufacturing to increase its chip-on-wafer-on-substrate capacity, the limited supply of GPUs is bolstering Nvidia's (and its peers') pricing power.

Image source: Getty Images.

Nvidia's shares have a dubious post-earnings track record

While past events can't guarantee what's to come on Wall Street, history has a way of rhyming. In Nvidia's case, earnings reports are rarely well-received. While the company's shares occasionally move up in after-hours trading, these gains rarely stick.

Nvidia's stock has declined on the trading day following its earnings report in six of the last eight quarters:

• Q1 2027: (1.8%)
• Q4 2026: (5.5%)
• Q3 2026: (3.2%)
• Q2 2026: (0.8%)
• Q1 2026: 3.2%
• Q4 2025: (8.5%)
• Q3 2025: 0.5%
• Q2 2025: (6.4%)

My prediction is that we'll see this post-earnings downtrend extend for a fifth consecutive quarter for one simple reason: investors' expectations are too lofty.

For more than 30 years, investors have consistently overestimated the pace of adoption and/or optimization for game-changing innovations with large addressable markets. Although demand for Nvidia's GPUs has been exceptional, businesses aren't particularly close to optimizing their AI solutions. In other words, the puzzle pieces for a bubble-bursting event remain in place.

Nvidia may also be a victim of its own success. Growing external and internal competition makes it unlikely that the company's margins will push higher. With several of Nvidia's top customers by net sales developing AI chips for use in their data centers, Nvidia could lose out on valuable data center real estate and/or see persistent GPU scarcity wane over time.

In short, a utopian scenario has already been priced into Nvidia's shares, leading to persistent sell-offs after earnings.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

You might not realize it, but one of the most important data releases of the entire quarter dropped on Aug. 14. While most investors have been enamored with earnings season, the quarterly filing of Form 13Fs can provide invaluable information on which stocks Wall Street's brightest money managers have been buying and selling.

The theme of the second quarter is that artificial intelligence (AI) stocks remain polarizing among billionaire money managers. Whereas five prominent billionaires dumped shares of Palantir Technologies (NASDAQ: PLTR) in the second quarter, other billionaire investors found an AI applications stock they couldn't stop buying: Google parent Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG).

Image source: Getty Images.

Palantir's outsize growth is overshadowed by its stratospheric valuation

Palantir has been absolutely crushing it since the start of 2023, with its shares rallying more than 2,600% as of Aug. 20, 2026. These gains didn't happen by accident. They reflect the company's seemingly impenetrable moat as an AI-driven software-as-a-service (SaaS) provider.

Palantir's Gotham is a SaaS platform used by the U.S. government and its allies to plan and oversee military missions. With minimal large-scale competition for lucrative long-term government contracts, Gotham is generating sustained double-digit growth and hearty profits for the company.

Nevertheless, five billionaire asset managers dumped shares of Palantir Technologies during the second quarter, including:

• John Overdeck's and David Siegel's Two Sigma Investments
• Cliff Asness's AQR Capital Management
• Ken Griffin's Citadel Advisors
• Steven Cohen's Point72 Asset Management

While profit-taking is a logical reason for these billionaires to cash in their chips, it may not be the only reason.

Historically, no company at the forefront of a game-changing technology has sustained a price-to-sales (P/S) ratio above 30 for any extended period. Palantir entered the year at a P/S ratio north of 100, and it still sports a P/S ratio of 73 (as of Aug. 20). This stratospheric valuation likely isn't sustainable.

Image source: Getty Images.

Billionaire money managers can't stop buying Alphabet stock

On the other hand, Wall Street's savviest billionaire investors keep piling into Alphabet. The latest round of 13Fs shows four billionaires as buyers, including:

• Ken Fisher's Fisher Asset Management
• Dan Loeb's Third Point
• Stanley Druckenmiller's Duquesne Family Office
• Cliff Asness's AQR Capital Management

You could also include Berkshire Hathaway in this group, given that the now-retired Warren Buffett kick-started what's become the company's third-largest position in the latter half of 2025.

Alphabet's seemingly impenetrable advertising moat has long been its lure. Google accounts for more than 91% of worldwide internet search traffic, and Alphabet also owns YouTube, the second-most-visited site on the planet behind Google. It rightly garners exceptional ad pricing power and can take advantage of long-winded economic expansions.

$GOOG Alphabet Q2 FY26:

• Revenue +24% Y/Y to $119.8B ($2.8B beat).
• Operating margin 34% (+2pp Y/Y).
• $98B net gains from equity investments.

☁️ Google Cloud:
• Revenue +82% Y/Y to $24.8B
• Operating margin 36% (+15pp Y/Y).

▶️ YouTube ads +13% to $11.1B pic.twitter.com/seYlITzfg6

-- App Economy Insights (@EconomyApp) July 22, 2026

But it's Alphabet's AI ambitions that really have billionaires excited. Cloud infrastructure services platform, Google Cloud, was already sustaining double-digit annual sales growth before the AI revolution. Integrating generative AI and large language model solutions into Google Cloud has supercharged growth rates. High-margin revenue growth for Google Cloud reached 82% in the second quarter when compared to the previous year.

Prominent billionaire money managers appear to have chosen their preferred AI applications stock, and it isn't Palantir.

Sean Williams has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, and Palantir Technologies. The Motley Fool has a disclosure policy.

For the better part of the last four years, Wall Street can do no wrong. Since early June, the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have rocketed to fresh all-time highs.

Although catalysts have been bountiful, with the evolution of artificial intelligence (AI) and better-than-expected corporate earnings each playing a key role, historical headwinds are mounting for the high-flying stock market. While history conclusively shows that optimism and long-term investors are handsomely rewarded -- the S&P 500 has never failed to rise over any rolling 20-year period, including dividends -- the argument can be made that the stock market is less attractive now than it's ever been.

Image source: Getty Images.

Stock valuations have reached dot-com bubble territory

Even though history can't guarantee what's to come, past events have an uncanny ability to predict the future on Wall Street. Based solely on historical precedent, stock valuations are sending all the wrong signals to investors.

The S&P 500's Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), is based on average inflation-adjusted earnings over the last decade. When backtested to January 1871, the Shiller P/E Ratio has averaged 17.4. As of Aug. 21, the CAPE Ratio was almost 42, which is a stone's throw from the dot-com bubble peak of 44.19 in December 1999.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 pic.twitter.com/CtCmSgWnLt

-- Barchart (@Barchart) July 11, 2026

The S&P 500's Shiller P/E has surpassed 30 only six times over nearly 156 years, including the present. The previous five occurrences all ended in disaster for the stock market, with the Dow, S&P 500, and/or Nasdaq Composite losing between 20% and 89% of their respective values.

Outstanding margin debt has gone parabolic

Rapidly rising margin debt is another blaring historical red flag for the stock market.

Margin represents money that investors borrow from their broker, with interest, to short-sell (wager against) or purchase securities. When used to buy stocks or exchange-traded funds, margin acts as leverage. In essence, higher margin use equates to greater risk-taking by investors.

Total Margin Debt hits $1.5 Trillion, a new all-time high 🤯 👀 pic.twitter.com/1IXqZGgrqs

-- Barchart (@Barchart) July 20, 2026

Although outstanding margin debt is expected to steadily climb over the long term, parabolic increases in margin debt are never a good sign for Wall Street. Between April 2025 and June 2026, outstanding margin debt surged 77% to a record $1.502 trillion, according to FINRA.

Over the last three decades, margin debt has skyrocketed by at least 65% over a short period on four occasions, including the present. The prior three instances were either immediately or shortly followed by the bursting of the dot-com bubble, the financial crisis, and the 2022 bear market.

Image source: Getty Images.

Game-changing technologies and bubbles go hand in hand

Lastly, history tells us that stock market rallies driven by game-changing technologies invite trouble.

Every next-big-thing innovation since (and including) the advent of the internet has undergone a bubble-bursting event. These bubbles form because investors persistently overestimate the pace of adoption and optimization of new technologies.

For example, businesses didn't optimize their internet solutions until well after the dot-com bubble had burst. While demand for AI infrastructure is off the charts, proving that adoption isn't a concern, we're likely several years away from businesses optimizing AI solutions to bolster sales and profits. When otherworldly investor expectations aren't met, bubbles burst.

Historically speaking, this may be the least attractive the stock market has ever been.

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.

Although artificial intelligence has been driving Wall Street's bull market for almost four years, it's not the only game-changing trend that's capturing the attention and capital of investors. The quantum computing revolution is a potential trillion-dollar addressable market and is exciting investors.

As of October 2025, several pure-play quantum computing stocks were delivering breakneck trailing 12-month (TTM) returns. IonQ (NYSE: IONQ), Rigetti Computing (NASDAQ: RGTI), and D-Wave Quantum (NASDAQ: QBTS) gained as much 6,200% over the trailing year. Investors who had the wherewithal to put their capital to work in these pure-play companies have been handsomely rewarded.

Image source: Getty Images.

But things may not be as perfect as the eye-popping two-year gains in quantum computing stocks suggest. Based on the actions of those who know IonQ, Rigetti, and D-Wave best, a worrisome message has been sent to Wall Street.

Insiders at IonQ, Rigetti, and D-Wave have put Wall Street on notice

Even though dozens of analysts closely monitor these pure-play quantum computing stocks, no one understands the nuts and bolts of these companies better than their insiders. An "insider" is a high-ranking executive, board member, or beneficial owner of at least 10% of a company's outstanding shares who may possess non-public information.

Typically, insiders are a public company's biggest cheerleaders. But sometimes their actions speak louder than words.

Securities law requires that insiders report any purchases or sales in their company's stock (including option exercises) via Form 4 within two business days. This also allows everyday investors to track whether insiders have been buyers or sellers of their company's stock.

In the case of IonQ, Rigetti Computing, and D-Wave Quantum, insiders have been decisive sellers. Over the trailing three-year period, net insider sales in these stocks total:

• IonQ: $457.2 million
• Rigetti: $74 million
• D-Wave: $331.3 million

Collectively, insiders at these pure-play quantum computing companies have sold a net of nearly $863 million of their stock.

If there's a silver lining to the above data, it's that not all selling activity is necessarily nefarious. For instance, high-ranking executives and board members are often compensated in stock and/or options. Given that stock sales are commonly a requirement to satisfy the federal and/or state tax liability of stock-based compensation, tax-based selling isn't a worry for investors.

But the opposite side of this coin, insider buying, is potentially even more worrisome for quantum computing pure-play stocks.

Over the trailing three years, insider buying totals are as follows:

• IonQ: $3.32 million
• Rigetti: $0
• D-Wave: $1,795

Save for a handful of director purchases at IonQ, insider buying would be virtually nonexistent. While there are plenty of reasons to sell shares of a company, there's only one reason to buy: the belief in future appreciation.

If insiders aren't buying, investors should ask why.

IONQ PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.

One reason could be the valuation of quantum computing stocks. No company at the forefront of a game-changing trend has ever maintained a price-to-sales (P/S) ratio above 30 for an extended timeline. IonQ, Rigetti, and D-Wave sport respective P/S ratios of 59, 398, and 542!

Additionally, game-changing technologies and bubble-bursting events go hand in hand. All innovations need ample time to mature. Quantum computers are neither widespread nor anywhere close to optimized at present, increasing the likelihood that we witness a bubble-bursting event.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.

Although earnings season -- the six-week period where a majority of S&P 500 companies report their operating results -- is often considered the pinnacle of each quarter, don't overlook the importance of quarterly Form 13F filings with regulators. A 13F provides investors with a snapshot of the stocks that Wall Street's savviest money managers bought and sold in the latest quarter.

Artificial intelligence (AI) stocks remained a popular trade for billionaire asset managers during the second quarter. According to Aug. 14-filed 13Fs, more than a half-dozen billionaire investors dumped shares of Micron Technology (NASDAQ: MU), while several others piled into world-leading chip fabrication company Taiwan Semiconductor Manufacturing (NYSE: TSM).

Image source: Getty Images.

Eight billionaires hit the brakes on Micron in the June-ended quarter

Arguably, no group of stocks in the AI hardware arena has been hotter in the first-half of 2026 than memory and storage solutions providers. Micron reached the trillion-dollar market cap plateau and, as of Aug. 19, has gained 228% year-to-date, with insatiable demand for its high-bandwidth memory sending its stock into the stratosphere.

Nevertheless, eight billionaires pared or exited their fund's stakes in Micron in the second quarter, including:

• Ken Griffin's Citadel Advisors
• David Siegel's and John Overdeck's Two Sigma Investments
• Israel Englander's Millennium Management
• David Tepper's Appaloosa
• Stanley Druckenmiller's Duquesne Family Office
• Steven Cohen's Point72 Asset Management
• Cliff Asness's AQR Capital Management

With the understanding that some of these funds hedge their common stock positions with options, profit-taking was likely the No. 1 sell-side catalyst. Micron's shares effectively quadrupled between March 30 and June 25, providing billionaire investors with ample opportunity to lock in substantial profits.

But historical precedent may also be behind this selling activity. History shows that when memory providers are trading at single-digit forward price-to-earnings ratios and enjoying otherworldly pricing power is precisely when investors should sell.

Image source: Getty Images.

Taiwan Semiconductor is the new apple of billionaires' eyes

At the other end of the spectrum are five billionaires who can't seem to get enough of Taiwan Semiconductor Manufacturing (commonly known as "TSMC"). The second-quarter buyers include:

• Terry Smith's Fundsmith
• David Tepper's Appaloosa
• Ken Fisher's Fisher Asset Management
• Dan Loeb's Third Point
• Stanley Druckenmiller's Duquesne Family Office

Additionally, TSMC is the No. 1 holding for billionaires Chase Coleman of Tiger Global Management and Philippe Laffont of Coatue Management.

The attraction to TSMC is almost certainly related to its foundational role in the AI data center build-out. As of the third quarter of last year, it held a whopping 72% share of global contract chip manufacturing. TSMC has been rapidly expanding its monthly chip-on-wafer-on-substrate capacity to meet the insatiable need for graphics processing units in high-compute data centers.

Booking contracts well in advance has translated into exceptional pricing power for Taiwan Semiconductor. According to consensus estimates from Wall Street analysts, TSMC is on track to more than double its earnings per share between 2025 and 2027.

Although advanced chips make up the bulk of TSMC's growth, the company also has strong ties as a manufacturer of chips for smartphones, next-generation vehicles, and Internet of Things innovations.

While TSMC wouldn't be immune to an AI bubble-bursting event, should one arise, it would arguably be in much better shape than Micron Technology to navigate a challenging environment.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Outsize stock market returns under President Donald Trump have become the norm. Since early June, the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have blasted to record highs.

But things aren't nearly as peachy for the U.S. economy and Wall Street as the broad-market indexes suggest. Although the evolution of artificial intelligence (AI) is successfully lifting the tide on Wall Street, elevated inflation, primarily driven by two of Donald Trump's policies -- tariffs and the Iran war -- threatens to pull the rug out from beneath investors at any moment.

Fed Chair Kevin Warsh and his FOMC peers face some challenging decisions on inflation. Image source: Official Federal Reserve Photo.

While new Fed Chair Kevin Warsh and his Federal Open Market Committee (FOMC) colleagues have erred on the side of caution and left interest rates unchanged over the last two meetings, the recently released July 28-29 FOMC meeting minutes paint a potential worst-case scenario for the central bank and stock market.

The FOMC lays out the possibility of its most worrisome scenario taking shape

In many respects, the July Fed meeting minutes echoed what we already knew. Three regional presidents dissented in favor of a quarter-point rate hike, believing that getting ahead of elevated inflation now will prevent the need for more aggressive action down the line.

The FOMC meeting minutes also noted that the impacts of the AI build-out on consumer prices have "been limited to select categories." This is more or less in line with the June FOMC meeting minutes, with most participants expecting AI to be disinflationary over time.

However, one particular sentence under "Participants' Views on Current Conditions and the Economic Outlook" stands out for all the wrong reasons. In addition to noting that inflation risks were skewed to the upside by renewed conflict and uncertainty in the Middle East, the meeting minutes state:

Many participants highlighted the possibility that, after several years of inflation above two percent, continued elevated inflation rates could begin to affect inflation expectations and wage- and price-setting decisions.

In other words, after 65 consecutive months of headline inflation topping the FOMC's long-term target of 2%, and several successive supply shocks, including the COVID-19 pandemic, Trump's tariffs, and the Iran war, policymakers believe that businesses may begin to price in elevated inflation as the new norm. That's not the message Fed Chair Warsh has preached since taking charge, and it's an absolute nightmare scenario for him and the FOMC if they hope to deliver price stability.

65.

As in 65 consecutive months with US inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation. pic.twitter.com/WErvde2rue

-- Charlie Bilello (@charliebilello) August 12, 2026

The positive for Warsh and his colleagues is that Treasury bond yields at the long end of the yield curve have notably jumped this year, likely due to elevated inflation and rapidly growing national debt. Higher Treasury bond yields can increase corporate borrowing costs and modestly pump the brakes on elevated inflation.

But with Treasury Secretary Scott Bessent announcing a beefed-up bond-buying program last week, this early win for Warsh and the Fed may prove fleeting. To avoid a nightmare scenario in which businesses set wages and prices based on preexisting expectations of elevated inflation, the new Fed chair and his peers may have little choice but to raise interest rates.

If the Federal Reserve raises interest rates, it could be difficult, if not impossible, for Wall Street's AI-driven rally to sustain historically expensive valuation multiples.

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.

For the overwhelming majority of the more than 71 million traditional Social Security beneficiaries (retired workers, workers with disabilities, and survivors of deceased workers), few announcements are more anticipated than the annual cost-of-living adjustment (COLA) reveal.

Social Security's COLA is best described as an annual raise passed on to recipients to offset the effects of inflation. If, for example, the cost for a broad basket of goods and services regularly purchased by seniors increased by 3% from one year to the next and benefits remained static, recipients' buying power would decline.

This highly anticipated Social Security raise is announced in mid-October by the Social Security Administration and is determined by inflation data from July through September. With one month of critical inflation data already in the books, estimates are narrowing as to how much benefits will increase in 2027.

But this is only part of the story. Next year's raise is subject to a historic Trump bump, driven by two of President Donald Trump's policies.

President Trump delivering remarks. Image source: Official White House Photo by Daniel Torok.

Social Security's 2027 COLA is getting a significant Trump bump

To preface this discussion, inflation is perfectly normal for an expanding economy. Since the Consumer Price Index for Urban Wage Earners and Clerical Workers became the program's annual inflation measure in 1975, there have only been three years in which deflation (falling prices) resulted in no COLA being passed along to recipients. The aggregate cost for goods and services rising over time is perfectly normal.

However, two of Donald Trump's policies are directly boosting the prevailing inflation rate, and thus Social Security's 2027 COLA forecasts.

To begin with, next year's COLA projections are being influenced by the same variable that gave Social Security's 2026 raise a boost: Trump's tariff and trade policy.

In April 2025, the president introduced sweeping global tariffs and higher reciprocal tariffs on countries with unfavorable trade imbalances with America. Even though these tariffs were invalidated by the U.S. Supreme Court in February 2026, adding duties to select imported goods increased consumer prices and provided a modest boost to U.S. inflation and Social Security's 2026 COLA.

65.

As in 65 consecutive months with US inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation. pic.twitter.com/WErvde2rue

— Charlie Bilello (@charliebilello) August 12, 2026

Trump's tariffs remain a source of modest inflationary pressure. Recently, the Trump administration announced a new wave of sweeping global tariffs on more than 80 countries. These duties, which can increase domestic production costs, are likely to be passed on to consumers.

The other policy that's expected to result in a sizable Trump bump in 2027 is the Iran war.

Shortly after President Trump approved military action against Iran on Feb. 28, the latter closed the Strait of Hormuz to most commercial traffic. This stymied the flow of one-fifth of the world's liquid petroleum. The reaction in energy markets was swift and violent, with gas prices rising at the fastest pace in three decades.

But the Iran war isn't just an energy supply issue any longer. Economic data suggest that Iran-war-driven inflation has reached the broader economy, which should result in sustainably higher inflation and a beefier benefit boost for Social Security recipients in the upcoming year.

Image source: Getty Images.

How much of a Trump bump-driven raise can Social Security beneficiaries expect in 2027?

Understandably, we won't know precisely how much Social Security benefits will increase until the Bureau of Labor Statistics publishes the September inflation report on Oct. 14. But with the first puzzle piece in place, the July inflation report, independent estimates for Social Security's Trump bump-driven 2027 COLA are streaming in.

The Senior Citizens League, a nonpartisan senior advocacy group, adjusted its 2027 COLA projection down a bit to 3.6% following the release of the July inflation report. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson pared back her Social Security raise forecast to 3.4% from a peak of 4.7% just a few months ago.

Based on the average of these two independent estimates, Social Security's 2027 raise would be 3.5%. This would mark the sixth consecutive year with a payout increase of at least 2.5%, and it would tie for the seventh-largest year-over-year percentage increase since 1992.

BREAKING: 71 million Social Security beneficiaries will see a 2.8% cost-of-living adjustment (COLA) beginning in January 2026. The average annual increase over the last decade: 3.1%.https://t.co/l5IYmkf6Ih pic.twitter.com/pgqtPLgqMB

— Charlie Bilello (@charliebilello) October 24, 2025

But it's one thing to analyze percentages and another to look at what this means in nominal-dollar terms.

If the average of these two independent estimates proves accurate, Social Security's 2027 COLA will boost the average monthly retired-worker benefit check by $73 to approximately $2,159. For context, the average retired-worker payout surpassed $2,000 for the first time in May 2025.

Sizable increases would also be in the cards for workers with disabilities and survivor beneficiaries. The average worker with disabilities and survivor beneficiary would each see their monthly payout increase by $57 in 2027 to approximately $1,693 and $1,692, respectively.

Best of all, Social Security's 2027 raise comes with a potential silver lining for tens of millions of retired-worker beneficiaries.

The 2026 Medicare Trustees Report calls for Medicare's Part B premium -- this is the segment of Medicare that covers outpatient services -- to climb by 3.25% to $209.50 per month in 2027. A relatively modest estimated percentage increase in the Part B premium would allow Social Security beneficiaries who are enrolled in traditional Medicare to retain more of next year's COLA.

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Despite short-lived volatility tied to the Iran war in March, 2026 is shaping up to be another banner year for the stock market. Since early June, the iconic Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and technology-powered Nasdaq Composite (NASDAQINDEX:^IXIC) have blasted to respective all-time highs.

There's little question that the rise of artificial intelligence (AI) has been Wall Street's No. 1 catalyst. Otherworldly spending on the AI infrastructure build-out has increased corporate growth rates and expanded stock valuations to levels last seen in the months leading up to the bursting of the dot-com bubble.

While evidence is mounting that an AI bubble may be brewing, this, arguably, isn't Wall Street's biggest bubble. Something far more sinister lurks in the shadows and, based on historical precedent, the bursting of this bubble may already have begun. If history were to repeat, the consequences for the stock market would be dire.

Image source: Getty Images.

The stock market's risk-taking bubble may be popping

Headwinds are always present for the stock market. Whether it's above-average inflation, weak job growth, or historically pricey valuations, something is always threatening to pull the rug out from beneath investors.

However, no warning over the last three decades has been more prescient or worrisome than outstanding margin debt.

Margin is the money an investor borrows from their broker, with interest, to short-sell (wager against) or purchase securities. When used to buy stocks or exchange-traded funds (ETFs), margin acts as a form of leverage and can be used as a crude gauge of investors' willingness to take risks.

Over several decades, it's perfectly normal for outstanding margin debt to steadily rise in lockstep with the overall value of public companies. But things tend to go awry when margin debt goes parabolic over a relatively short time frame (i.e., when investors' willingness to take risks increases dramatically).

In June 2026, outstanding margin debt, published monthly by FINRA, jumped to an all-time high of $1.502 trillion. What's worth noting is that margin debt spiked 77%, from approximately $850.6 billion in April 2025 to $1.502 trillion in June 2026, over 14 months.

Total Margin Debt hits $1.5 Trillion, a new all-time high 🤯 👀 pic.twitter.com/1IXqZGgrqs

— Barchart (@Barchart) July 20, 2026

There have only been four relatively short periods over the last three decades in which outstanding margin debt has spiked by at least 65%:

• March 1999 to March 2000: In the 12 months leading up to the official bursting of the dot-com bubble, outstanding margin debt soared 80% to just shy of $300 billion. In the wake of this bubble-bursting event, the S&P 500 and Nasdaq Composite lost 49% and 78% of their values, respectively.
• June 2006 to July 2007: Mere months before the financial crisis really took hold, margin debt surged by 66% to approximately $416 billion. The Great Recession took an even greater toll on the S&P 500 than the dot-com bubble did, with this iconic index shedding 57% of its value.
• March 2020 to October 2021: Following the height of the short-lived COVID-19 crash, and amid several rounds of fiscal stimulus, outstanding margin debt exploded by 95%. It peaked just three months before the 2022 bear market took shape, which lopped 25% and 33% off the S&P 500 and Nasdaq Composite, respectively.
• April 2025 to June 2026: Outstanding margin debt peaked at a 77% increase over 14 months.

In July, FINRA reported that outstanding margin debt fell to $1.417 trillion, meaning it's risen by 67% over the last 15 months. When outsize risk-taking begins to wane on Wall Street, history tells us it never happens quietly. Every instance when outsize risk-taking reversed (vis-à-vis margin debt) was almost immediately followed by a significant reversal in equities.

While a one-month retracement in July doesn't make a trend -- outstanding margin debt briefly shrank for two months in February-March 2026 -- parabolic moves in margin debt that eventually reverse have consistently foreshadowed bear markets on Wall Street.

We may very well be witnessing Wall Street's biggest bubble, outstanding margin debt, popping.

Image source: Getty Images.

Bubble-bursting events offer a silver lining for optimistic, long-term investors

Although history can't guarantee short-term directional moves on Wall Street, it has an even better track record of forecasting long-term trends.

On the one hand, we've just seen that outstanding margin debt has, for three decades, accurately foreshadowed significant downside in equities. Something similar has been observed with the S&P 500's Shiller Price-to-Earnings Ratio, which has a perfect track record of forecasting significant stock market declines when backtested over nearly 156 years.

But history is a two-way street, and bull and bear markets aren't mirror images of one another.

In late May, the analysts at Bespoke Investment Group published a data set on X (formerly Twitter) that compared the calendar-day length of every S&P 500 bull and bear market since the start of the Great Depression (September 1929). It demonstrated what a night-and-day difference optimism and pessimism yield for investors.

The current bull market that began on 10/12/22 is now the 9th longest in S&P 500 history, surpassing the 1,324-day bull that ended on 2/9/1966: pic.twitter.com/4mGsS2t2ft

— Bespoke (@bespokeinvest) May 30, 2026

On the one hand, the average of 27 bear markets found its trough after 286 calendar days, or roughly 9.5 months. Furthermore, no 20% or greater decline in Wall Street's benchmark index has lasted longer than 630 calendar days.

In comparison, the typical S&P 500 bull market has lasted 1,023 calendar days as of late May 2026, which is roughly 3.6 times longer than the average bear market. Additionally, more than half (14) of all S&P 500 bull markets have persisted longer than the lengthiest bear market.

The point is that downturns create opportunities for long-term-minded optimists to pounce. Even though it's impossible to know ahead of time precisely when a downturn will begin, how long it'll last, and how much the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite will drop, more than a century of historical data shows that Wall Street's major indexes (and top companies) increase in value over time.

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.

Look up the word "resiliency" in a dictionary, and you'd probably see a photo of the U.S. stock market, which has been climbing a wall of worry for years. Since early June, the time-tested Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and innovation-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) have each blasted to record highs.

This ongoing outperformance has occurred despite concerns of an artificial intelligence (AI) bubble taking shape, and with outstanding margin debt soaring. But the biggest risk of all to the high-flying stock market is above-average inflation.

Although modest inflation (rising prices) is perfectly normal for an expanding economy, actions taken by President Donald Trump have directly affected domestic prices. While the president has assured the public that prices will come "tumbling down" once the Iran war is over, Trumpflation data tells a completely different story.

President Trump insists that fuel prices will tumble once the Iran war is resolved. Image source: Official White House Photo by Daniel Torok.

President Trump pitches lower fuel costs to consumers

Trumpflation (inflation that's specifically driven by President Trump's policies) comes in two forms: tariffs and the Iran war.

For more than a year, Fed Chairs Jerome Powell and Kevin Warsh have cited the president's tariffs as modestly lifting consumer prices in the goods sector. With the Trump administration recently imposing a new round of sweeping global tariffs, ranging from 10% to 12.5% on more than 80 countries, this inflationary dynamic is expected to continue.

However, the more prominent source of inflation has been the Iran war. Shortly after President Trump green-lit military operations against Iran, the latter shut down the Strait of Hormuz to virtually all maritime traffic. This essentially halted the flow of a fifth of the world's petroleum liquids.

In the weeks that followed, gas prices skyrocketed at the fastest pace in three decades. This parabolic increase in fuel prices, in the wake of the largest modern-day energy supply disruption, almost single-handedly sent trailing 12-month inflation (TTM) to a three-year high of 4.2% in May.

However, President Trump has been adamant that Iran war-driven inflation, including elevated fuel prices, will come crashing down once the conflict is resolved.

Oil is flowing and gas prices have begun tumbling down, now BELOW $4 per gallon nationally. pic.twitter.com/GJFxRZbovx

-- The White House (@WhiteHouse) June 18, 2026

In March, the president responded to reporters by stating, "Well, I think your gas prices, as soon as that's over, are going to come tumbling down along with everything else."

Three months later, in mid-June, the White House (courtesy of President Trump) tweeted that "oil is flowing and gas prices have begun tumbling down, now below $4 per gallon nationally."

The prospect of peace talks between the U.S. and Iran has indeed driven West Texas Intermediate and Brent crude oil prices well below their Iran war highs. Although fuel prices react to the upside almost immediately when energy supply shocks occur, they historically fall like a feather once these supply issues are resolved.

While fuel prices aren't exactly "tumbling down" as the president put it, they have notably retraced in recent months.

Unfortunately for consumers and the stock market, energy prices aren't the headline story any longer.

Image source: Getty Images.

Trumpflation is becoming entrenched in the broader economy -- and that's a big-time problem

On the surface, the June and July inflation reports appear to be a silver lining for consumers, with TTM inflation falling to 3.5% in June (down from 4.2% in May) and 3.4% in July. But an all-important inflation figure points to Trumpflation digging its proverbial heels into the broader economy.

In May, when headline inflation hit a three-year high of 4.2%, Core Personal Consumption Expenditures (PCE) reached 3.4%, its highest level since October 2023. Core PCE excludes volatile food and energy costs, providing economists and investors with a clearer understanding of long-term price trends.

While headline inflation has retraced by 80 basis points to 3.4% over the last two months, Core PCE for June eased to just 3.3%. According to the Federal Reserve Bank of Cleveland's Inflation Nowcasting tool, Core PCE is projected to essentially hover at 3.29% in July and 3.34% in August. The price stickiness of this all-important measure of inflation indicates that the effects of Trumpflation have moved well beyond the energy sector.

64.

As in 64 consecutive months with US core inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation.

Kevin Warsh talks a big game, but talk is cheap. The Fed should have hiked rates yesterday and ended QE. pic.twitter.com/HvimqfW6WW

-- Charlie Bilello (@charliebilello) July 30, 2026

For instance, some businesses have been forced to reroute shipments, change transportation methods entirely, or alter their suppliers in lieu of the Strait of Hormuz's closure. These changes are increasing production costs that businesses are, in many cases, passing on to consumers. This structural inflation is considerably tougher to remove than generally short-lived energy supply shocks.

Trumpflation becoming a broad-based economic issue is terrible news for Fed Chair Kevin Warsh and his central bank colleagues, as well as the stock market.

Since Kevin Warsh was sworn in as Fed chair on May 22, Treasury bond yields at the long end of the yield curve have soared, highlighted by the 30-year yield hitting a 25-year high. But if Trumpflation digs in its heels, it's going to take more than just bond traders to deliver price stability. Warsh and the Federal Open Market Committee (FOMC) may be forced to act and raise the federal funds target rate to bring prices down.

Trumpflation prompting the FOMC to raise interest rates wouldn't go over well on Wall Street. The AI data center build-out is the primary catalyst responsible for lifting the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to new heights. The otherworldly spending on this infrastructure build-out is being partially financed using debt. If lending costs rise and the AI build-out slows, even marginally, it could spell disaster for the second-priciest stock market in history.

Even if the Iran war officially ends relatively soon, the inflationary effects of Trumpflation should stick around for a while.

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.

Despite volatility tied to the Iran war, it's shaping up to be another fantastic year for investors. Since the beginning of June, the ageless Dow Jones Industrial Average (DJINDICES:^DJI), broad-based S&P 500 (SNPINDEX:^GSPC), and innovation-driven Nasdaq Composite (NASDAQINDEX:^IXIC) have all catapulted to fresh highs, thanks in large part to the artificial intelligence (AI) revolution.

But several factors suggest the stock market is on shakier ground than the Dow, S&P 500, and Nasdaq Composite indicate. Perhaps no headwind echoes louder than inflation.

Fed Chair Kevin Warsh's job just became far more challenging. Image source: Official Federal Reserve Photo.

Fed Chair Kevin Warsh, who was sworn in just three months ago, took the reins with trailing 12-month inflation at a three-year high of 4.2%. While things appeared to be moving in the right direction on the inflation front in June and July, a surprise announcement by Treasury Secretary Scott Bessent on Aug. 19 just threw an enormous monkey wrench into Warsh's and the Federal Open Market Committee's (FOMC) plans.

The U.S. Treasury Department is conducting a surprise bond market intervention

In the lead-up to Warsh's swearing-in as Jerome Powell's successor on May 22, Treasury bond yields at the long end of the yield curve (10-, 20-, and 30-year bonds) started climbing. Recently, the 30-year Treasury bond yield hit a 19-year high, while the 10-year yield came within a stone's throw of matching its level during the financial crisis.

Bond yields, which are inversely related to bond prices, have jumped for several reasons.

BREAKING: 🇺🇸 The US 30 year bond yield just hit 5.334%, the highest in 19 years.

The last time it was this high was 2007, the year before the global financial crisis started and the Nasdaq crashed 56% within the next 2 years. pic.twitter.com/OYRqldl1io

— Bull Theory (@BullTheoryio) August 18, 2026

For starters, above-average inflation has bond traders on edge. Higher yields at the long end of the yield curve point to the growing likelihood of the Federal Reserve taking action and adjusting its federal funds target rate.

Secondly, Fed Chair Warsh removed forward-looking guidance from the FOMC's meeting statements. This guidance signaled whether the FOMC was more likely to hike or lower interest rates as its next move. Without this transparency, which had been a staple of FOMC statements for more than two decades, bond traders have been left to do a bit of guessing about the Fed's next action. With inflation well above the FOMC's long-term target of 2%, yields on 10- and 30-year Treasuries have notably risen.

Thirdly, U.S. government deficits have been unsightly throughout the decade. According to the latest Treasury data, total U.S. debt crossed above $40 trillion for the first time last week. The prospect of servicing our nation's mounting debt is becoming more burdensome, leading to higher yields.

BREAKING: The US Treasury announces it will double the size long-term US government debt buybacks following the rapid surge in US Treasury yields.

Repurchases of $2 billion will now be increased to "at least" $4 billion, the US Treasury said.

The move is intended to provide…

— The Kobeissi Letter (@KobeissiLetter) August 19, 2026

In the wake of these challenges, Scott Bessent surprised Wall Street by announcing that the U.S. Treasury would double its purchases of long-dated Treasury bonds from $2 billion to $4 billion. While $4 billion is a relatively modest figure, it's the message Bessent is sending that's noteworthy.

The Treasury Department's bond intervention clearly signals that it's not happy with 10- and 30-year Treasury yields soaring to near-multidecade highs. By purchasing bonds, the Treasury Department will be attempting to drive up bond prices and weigh down yields at the long end of the curve.

Lowering longer-duration bond yields can potentially reduce corporate borrowing costs (a big positive for companies spending freely on the AI infrastructure build-out), make it easier to service America's rapidly expanding debt, and decrease mortgage rates, thereby making housing more affordable.

It all sounds great on paper, but it's a nightmare scenario for Kevin Warsh and the FOMC.

Image source: Getty Images.

Fed Chair Warsh is stuck between a rock and a hard place

In the months since Warsh took over as Fed chair, the bond market has done him and the FOMC a favor. Even though the FOMC hasn't changed its federal funds target rate, higher bond yields at the long end of the yield curve have made it costlier to borrow capital. Without lifting a finger, Warsh had bond traders tapping the brakes on above-average inflation.

Fed Chair Warsh addressed this phenomenon when speaking with the press after the July 28-29 FOMC meeting:

Two economic developments are worth highlighting. The first is a very notable change since our last meeting 42 days ago: Nominal and real yields are materially higher across the Treasury curve. In fact, some of the increases in market interest rates between FOMC meetings are among the most significant in the last two decades, ranking around the top decile or so.

Warsh attributed this reaction to "market participants are learning to play the ball, not the referee." In other words, without forward-looking guidance, the bond market has been forced to trade off a much narrower pool of data.

But the Treasury's bond market intervention may throw this dynamic out the window. With Bessent seemingly intent on driving down long-term Treasury yields, it may leave Warsh and his colleagues with no choice but to act -- i.e., raise the federal funds target rate.

Even though a weak jobs report slashed the odds of a September FOMC interest rate hike, the Treasury Department's actions have likely put rate hikes back on the table as a necessary means to deliver price stability.

64.

As in 64 consecutive months with US core inflation above the Fed's 2% target.

The Fed has lost all credibility when it comes to fighting inflation.

Kevin Warsh talks a big game, but talk is cheap. The Fed should have hiked rates yesterday and ended QE. pic.twitter.com/HvimqfW6WW

— Charlie Bilello (@charliebilello) July 30, 2026

Keep in mind that Warsh and the FOMC aren't just dealing with an Iran-war-driven energy supply disruption any longer. Based on the price stickiness of Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy costs, the inflationary pressures of the Iran war have reached the broader economy. Entrenched inflation is considerably tougher to combat than generally short-lived energy supply shocks.

If Kevin Warsh and his peers tackle sticky inflation head-on, they'll likely draw the ire of President Donald Trump and may halt the stock market's parabolic, AI-driven rally in its tracks. If they do nothing, inflation can accelerate, threatening economic growth and costing the central bank its hard-earned credibility in the eyes of investors.

Thanks to Scott Bessent and the U.S. Treasury Department, Kevin Warsh is now stuck between a rock and a hard place.

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.