President Donald Trump Expected the Iran War to Drive the Stock Market “Down 20% to 25%” — His Prophecy May Still Come True
Sean Williams, The Motley Fool
Sat, August 8, 2026 at 6:56 PM GMT+5:30
7 min read
Last week, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) and broad-based S&P 500 (SNPINDEX: ^GSPC) soared to fresh all-time highs. Meanwhile, the innovation-inspired Nasdaq Composite (NASDAQINDEX: ^IXIC) reached uncharted territory in early June
These all-time highs have been achieved despite mounting headwinds on Wall Street. Specifically, equities have launched to new highs with the Iran war still ongoing and trailing 12-month inflation clocking in well above the Federal Reserve’s long-term target of 2%
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Back in May, while speaking to the press about the Iran war in the Oval Office, President Donald Trump stated:
We just hit a new high in the stock market. The stock market’s the highest it’s ever been. And I expected that the market would be down 20% to 25%
While the stock market has, thus far, successfully shrugged off Iran war concerns, several factors point to President Trump’s downside prognostication for equities coming to fruition in the not-too-distant future
The Iran war’s inflationary concerns may force the Fed into action
Although war has an incalculable cost for the people directly impacted by it, the primary concern for Wall Street is the effects the Iran war can have on U.S. inflation
Not long after Trump gave the OK for the U.S. military to attack Iran on Feb. 28, the latter shut down the Strait of Hormuz to most commercial vessels. With few exceptions, this closure has been in place for more than five months, and it’s effectively halted the daily flow of a fifth of the world’s petroleum liquids
The most immediate impact of the Iran war has been felt at the fuel pump. Removing a fifth of the world’s crude oil supply sent energy prices, and thus prices at the pump, soaring. Even with crude oil prices notably below their Iran war peak, gas and diesel prices remain elevated, relative to where they were when the Iran war began. The longer the Strait of Hormuz remains closed to most maritime traffic, the longer it’ll take to return fuel prices to pre-war levels
But this isn’t just an energy supply issue anymore. The price stickiness of Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy costs, indicates that Iran-war-based inflation is impacting the broader economy. Even though headline inflation has eased a bit since peaking at a three-year high of 4.2% in May, Core PCE is essentially stagnant at 3.3% to 3.4%
