How Likely Is It That the Stock Market Crashes Under President Donald Trump in 2025? Here's What History Tells Us.

As President-elect Donald Trump prepares to return to the White House in 2025, investors are wondering if the stock market will follow the same trajectory as it did during his first term. The S&P 500(^GSPC -1.11%) returned 70% during Trump's four years in office, but history suggests that a stock market crash could be a possibility in 2025.

First, let's examine the correlation between Republican presidencies and stock market crashes. Since 1913, there have been 10 Republican presidents and 9 Democratic presidents. All 10 Republican presidents experienced a recession during their tenure, while only 4 Democratic presidents did not. Additionally, two-thirds of the S&P 500's peak-to-trough drawdowns occurred during, not prior to, a recession being declared. This suggests that Republican presidencies may be associated with a higher likelihood of stock market crashes due to the increased likelihood of recessions.

Another concern based solely on history is the S&P 500's Shiller P/E ratio, which stood at 37.58 as of the closing bell on Jan. 8, more than double its average reading of 17.19 when back-tested to January 1871. There have been only six occurrences in 154 years where the Shiller P/E has topped 30, including the present, and the previous five were eventually followed by declines ranging from 20% to 89% in the Dow, S&P 500, and/or Nasdaq Composite. This suggests that premium valuations aren't tolerated over long periods and that significant downside is likely when the Shiller P/E ratio is above 30.



However, it is essential to remember that the U.S. economy and stock market are not tied at the hip, and a recession is not guaranteed to occur during Trump's presidency. Additionally, the stock market's performance during Trump's first term was quite strong, with the S&P 500 returning 70% during his four years in office. This suggests that even if a recession were to occur, the stock market may still perform well due to other factors, such as deregulation and tax cuts.

In conclusion, while history suggests that a stock market crash is a possibility under President Donald Trump in 2025, it is not a certainty. Investors should continue to monitor economic indicators and other factors that may influence the stock market's performance during Trump's second term. As always, it is essential to maintain a diversified portfolio and stay informed about the latest developments in the market.