Uh-Oh! President Trump’s Landmark Tax Cuts Bill Could Be What Kills the Trump Bull Market

Rich DupreySun, May 10, 2026 at 10:08 AM UTC

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S&P 500 trades near 23 times forward earnings while Nasdaq-100 trades at 25 times earnings, but Trump’s tax cut law included a fast-track IPO rule allowing mega-IPOs like SpaceX, OpenAI, and Anthropic to enter major indexes almost immediately, forcing billions in index fund buying; Invesco QQQ Trust (QQQ) alone holds $340 billion in assets that may be redirected.

Forced index fund buying of mega-IPOs arriving at stretched valuations could drain liquidity from the broader market while historical data shows mega-IPOs like Meta (fell 47% within six months of peak) and Alibaba (fell 26%) often disappoint after initial excitement, creating risk of sharp market swings as concentration in top 10 stocks already exceeds 37% of S&P 500 value.

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The stock market has been on a tear during President Donald Trump’s second term. Since Jan. 20, 2025, the S&P 500 has climbed 23.4%. More stunningly, it has surged 48.5% since the April 8, 2025 tariff panic low, as investors decided the White House’s trade fights were survivable and artificial intelligence spending was unstoppable.

That rebound has surprised even longtime market skeptics. Hedge fund billionaire Paul Tudor Jones recently warned that stock valuations resembled previous bubble periods, yet he also admitted AI could keep stocks climbing longer than many expect. In fact, despite his prediction of a 35% market correction in the next two years, Jones has been buying AI stocks.

Ironically, though, Trump’s own signature economic legislation may shorten that timeline dramatically.

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Tax Cuts Helped Fuel Rally, but Also Changed IPO Rules

Trump’s “One Big Beautiful Bill,” signed into law on July 4, 2025, delivered what the White House called the largest tax cut package in U.S. history. Lower corporate taxes, accelerated depreciation, and investment incentives helped push earnings forecasts higher across the market. Goldman Sachs estimates S&P 500 earnings growth was "front-loaded" after the law passed.

That helped justify elevated valuations. The S&P 500 now trades near 23 times forward earnings, according to Birinyi Associates. The Nasdaq-100 trades closer to 25 times earnings.

Yet buried inside the legislation was a provision that could reshape markets in ways investors are only beginning to understand.

The law allowed exchanges to create fast-track index inclusion rules for newly public companies. Previously, Nasdaq-100 candidates generally needed a seasoning period before joining major indexes -- up to one year, or long enough for markets to establish stable pricing and liquidity.

However, the Nasdaq exchange implemented its new fast-track rule effective May 1, allowing qualifying mega-IPOs to enter the Nasdaq-100 almost immediately after listing. S&P Dow Jones Indices is reportedly considering similar changes for the S&P 500.

That matters because index inclusion forces buying.

Why Coming Mega IPOs Could Drain Market Liquidity

When companies like SpaceX, Anthropic, and OpenAI go public under the new rules, as is expected within the next few weeks or months, index funds and ETFs tracking the Nasdaq-100 may have no choice but to buy billions of dollars worth of shares almost immediately.

The Invesco QQQ Trust (NASDAQ:QQQ) alone holds roughly $340 billion in assets. Add institutional funds, pension managers, hedge funds, and even retail investors chasing the next AI giant, and the demand wave could become enormous.

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Bank of America just warned in a recent research note that mega-IPOs from SpaceX, Anthropic, and OpenAI could “absorb substantial equity capital flows” from the broader market. In plain English, money flowing into those IPOs has to come from somewhere -- and that “somewhere” could be existing stocks.

Surprisingly, history suggests that may not end well.

Mega IPO

IPO Year

Performance Within 6 Months of post-IPO Peak

Facebook (now Meta Platforms (NASDAQ:META))

2012

Fell 47%

Alibaba Group (NYSE:BABA)

2014

Fell 26%

General Motors (NYSE:GM)

2010

Fell 8% (struggled to rise above low for two years)

Saudi Aramco

2019

Fell 22%

Data from company filings and historical market pricing show mega-IPOs often disappoint after their initial excitement fades. Investors bid valuations too high, growth expectations become unrealistic, and lockup expirations increase selling pressure.

Now imagine that happening while index funds are forced buyers.

AI Mania Could Become a Concentration Problem

The AI boom has already concentrated market gains into a small number of companies. The top 10 stocks now account for more than 37% of the S&P 500’s total market value. Adding SpaceX, OpenAI, and Anthropic into major indexes almost immediately could push concentration even higher.

Granted, bulls argue these companies deserve massive valuations. OpenAI reportedly crossed $25 billion in annualized revenue. SpaceX dominates commercial launches through Starlink and reusable rockets. Anthropic has become one of the fastest-growing enterprise AI platforms. That said, valuation still matters -- eventually.

If institutions rotate billions into AI IPOs while trimming existing positions to fund purchases, liquidity could dry up for smaller stocks. That creates the conditions for sharp market swings -- especially in a market already trading near historic valuation highs.

Regardless of how you look at it, the combination of forced ETF buying, concentrated capital flows, and historically weak IPO performance creates a setup Wall Street has rarely faced before.

Key Takeaway

In short, Trump’s tax cuts helped extend the bull market. Lower taxes boosted profits, AI enthusiasm accelerated spending, and investors ignored valuation concerns as long as earnings kept rising.

But the same legislation may have planted the seeds of the market’s next correction. The fast-track IPO rule could funnel enormous amounts of capital into a handful of newly public AI giants at the exact moment valuations are already stretched. History shows mega-IPOs often stumble after launch, and forced index buying could magnify volatility rather than reduce it.

That does not guarantee a crash next week. Markets can stay expensive longer than many investors expect -- especially during technology revolutions. Still, smart investors should pay close attention to liquidity and concentration risk over the next several months.

When all is said and done, the danger may not come from tariffs, interest rates, or even the economy itself. It may come from too much money chasing too few AI stocks at exactly the wrong time.

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Source: “AOL Money”