The Bull’s Last Trick: A Federal Reserve Farce

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The Wall Street cognoscenti, bless their predictable hearts, have grown quite fond of the current administration. It’s a simple equation, really: a bit of fiscal largesse, a dash of optimistic delusion, and lo, the Dow Jones Industrial Average, the S&P 500, and even the notoriously fickle Nasdaq Composite have performed rather handsomely – 57%, 70%, and 142% respectively, during the recent, shall we say, non-consecutive term. A most agreeable coincidence, wouldn’t you agree?

And so, the Trump bull market has resurfaced, as reliably as a bad penny. A modest 13%, 15%, and 18% climb for the Dow, S&P, and Nasdaq, respectively, as of February 3, 2026. One might almost suspect a pattern, if one weren’t so accustomed to the capricious whims of the market. Still, it’s a pleasing sight for those holding the bags – at least, for the moment.

But every good illusion eventually requires a dismantling. And the unlikely villain in this particular drama isn’t a bear market, a global pandemic, or even a rogue tweet. No, the threat comes from an institution that traditionally postures as the very bedrock of financial stability: the Federal Reserve. A most curious development, wouldn’t you say?

Stocks Flourishing Under the Current Regime

Let us be clear: presidents rarely lack the opportunity to claim credit for a rising market. A glance at the historical record reveals that 26 of the last 33 presidential terms have seen positive returns for the Dow or S&P 500. It’s a comforting statistic for those in power, and a convenient one, too. The current administration, it seems, is no exception. Indeed, Carson Investment Research places the initial term within the top quartile of presidential performances spanning 129 years. A respectable showing, if not entirely unexpected.

The source of this prosperity is, of course, readily apparent. The Tax Cuts and Jobs Act, with its reduction of the corporate tax rate to a mere 21%, has proven remarkably effective at stimulating… well, share buybacks. Over $1 trillion in 2025, if you please! It’s a rather ingenious method of wealth redistribution, really – from the company to the shareholders. And who are the shareholders? Why, the very people who fund these grand schemes, naturally.

The “America First” agenda, with its tariffs and trade maneuvers, has also played a role, attracting investment – or at least, diverting it. Then there’s the usual froth of new technologies – blockchain, artificial intelligence, quantum computing – each promising untold riches, and each requiring a substantial investment, of course. Collectively, these forces have propelled the market to record highs. But a house built on such shaky foundations is rarely a safe bet.

A Division at the Central Bank Threatens the Rally

The Federal Reserve, traditionally the voice of reason (or at least, the illusion thereof), is currently engaged in a rather undignified spectacle. The FOMC, that august body responsible for setting monetary policy, is fractured. A disagreement here, a dissenting opinion there – it’s a far cry from the unified front one expects from an institution entrusted with the nation’s economic well-being.

In the last five meetings, at least one member has dared to question the prevailing wisdom. And in October and December, the dissenters were pulling in opposite directions! A 25-basis-point rate cut, yes, but one member favored inaction, while another demanded a more aggressive 50-basis-point slash. It’s a bit like a three-legged race, really – chaotic, unpredictable, and likely to end in a heap of confusion.

Such internal strife is rare. Since 1990, only three FOMC meetings have featured dissenting opinions pulling in opposite directions. Two of those meetings occurred in the last few months. It’s enough to make one question the very foundations of our financial system.

And as if that weren’t enough, the term of the current Fed chair is drawing to a close. The president has nominated a successor, Kevin Warsh, a gentleman with a penchant for deleveraging the Fed’s $6.6 trillion balance sheet. A noble ambition, perhaps, but one that could send long-term yields soaring and make mortgages prohibitively expensive. A delicate operation, to say the least.

All of this unfolds at a rather inconvenient moment. The S&P 500’s Shiller Price-to-Earnings Ratio is at levels not seen since… well, since the market was last indulging in a similar bout of irrational exuberance. There’s little margin for error, you see. The Federal Reserve has transformed itself from a stabilizing force into a potential liability. A most unfortunate turn of events, wouldn’t you agree?

The historic division within the FOMC could very easily upend the current bull market. And when it does, one can only hope that someone, somewhere, is prepared to pick up the pieces.

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2026-02-08 12:12