Will the Stock Market Crash 40% Under President Donald Trump? Over 150 Years of History Weighs In.

As the 2020 U.S. presidential election approaches, investors are wondering if a second term for President Donald Trump could spell disaster for the stock market. With the S&P 500 trading at historically high valuations and the economy facing headwinds from the COVID-19 pandemic, some are speculating that a Trump victory could lead to a 40% market crash. But does history support this claim?

First, let's examine the historical performance of the stock market under different presidents. According to data from Dimensional Fund Advisors, the average annualized return for a president's term is over 9.5%. Only three presidents have experienced negative returns for the S&P 500 on an annualized basis over the course of their term(s). This suggests that, historically, the stock market has performed well regardless of who is in the White House.



However, some investors are concerned about the potential impact of Trump's policies on the stock market. During his first term, Trump signed the Tax Cuts and Jobs Act of 2017, which reduced taxes for consumers and businesses, promoting economic growth. The U.S. GDP increased by 2.7% annually between 2017 and 2019, nearly twice the average growth rate of the previous decade. This policy, along with strong stock market performance, contributed to the S&P 500's exceptional performance during Trump's first term, with an annualized return of 14.1%.

On the other hand, Trump's proposed tariffs and immigration policies could have a negative impact on the stock market. Sweeping tariffs across all imported goods, especially those from China, could worsen inflation, weaken the labor market, and increase the federal debt. Large-scale deportations of undocumented immigrants could also negatively impact the labor market and the economy, potentially affecting the stock market.

Given the current valuation of the S&P 500, which is historically expensive, investors should not expect the market to continue performing at the same level as it did during Trump's first term. Instead, they should anticipate more modest returns, as the market has historically performed poorly from high valuations. This suggests that investors should be cautious and consider the potential risks associated with investing in an overvalued market.

In conclusion, while history shows that the stock market has performed well under various presidents, investors should be aware of the potential risks associated with Trump's proposed policies and the current market valuation. By evaluating the potential impact of these factors, considering the current valuation of the S&P 500, and diversifying their portfolios, investors can make more informed decisions about their investments. Ultimately, the future of the stock market under President Trump will depend on a combination of his policies, the economy, and market-specific factors.