Stock Market Returns Set to Soar Under President Donald Trump: A 20-Year Milestone in Sight

As the clock ticks down to President Donald Trump's inauguration, investors are eagerly anticipating the potential impact on the stock market. Trump's first term was marked by extraordinary returns, with the S&P 500(^GSPC 1.00%) surging 67% since his Inauguration Day in 2017. Now, as he prepares to assume the presidency once again, many are wondering if history will repeat itself and whether the stock market can achieve a level not witnessed in 20 years under his leadership.

During Trump's first term, the S&P 500 performed exceptionally well, outpacing the performance of other modern administrations. The index gained 67% over the course of his four-year term, a figure that only Bill Clinton's presidency (83%) surpassed among modern presidents. This strong performance can be attributed to a combination of factors, including Trump's signature Tax Cuts and Jobs Act (TCJA) of 2017, which reduced taxes for consumers and businesses, and his deregulatory policies, which fostered a more lucrative merger and acquisition environment.



However, it is essential to consider the current valuation of the S&P 500 when assessing the likelihood of a repeat performance during Trump's second term. As of January 2025, the S&P 500's Shiller P/E ratio stands at 37.79, more than double the average reading of 17.19 when back-tested to January 1871. This high valuation is a concern because there have been only six instances in 154 years, including the present, when the S&P 500's Shiller P/E ratio has surpassed 30. Following each instance, the Dow Jones, S&P 500, and/or Nasdaq Composite shed 20% to 89% of their value.

Despite the high valuation, some analysts remain optimistic about the stock market's prospects under Trump's leadership. They point to his proposed policy initiatives, such as lowering the corporate tax rate to 15% for domestic manufacturers, which could boost net profit margins and send the stock market higher. Additionally, Trump's efforts to reduce regulation in select sectors and industries could foster a more lucrative merger and acquisition environment, further driving stock prices higher.

In conclusion, while the high valuation of the S&P 500 suggests that a repeat performance during Trump's second term is less likely, investors should not dismiss the potential impact of his policy proposals on the stock market. As history has shown, Trump's first term was marked by extraordinary returns, and his proposed initiatives could once again drive the stock market to new heights. Investors should stay informed and prepared for potential market corrections or bear markets, but they should also be ready to capitalize on any opportunities that arise during Trump's second term.