Investors hopeful as Trump’s second term begins

Kaityn Mills
3 Min Read
investors hopeful as trump's second term begins

The stock market has seen a strong start to the year, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all reaching record highs. Investors are rallying around various catalysts, such as the rise of artificial intelligence, the resilience of the U.S. economy, and declining inflation rates. During President Trump’s first term, the Dow Jones, S&P 500, and Nasdaq Composite soared by 57%, 70%, and 142%, respectively.

Investors are now looking for a repeat performance during his second term. One major catalyst for this expectation is the prospect of corporate income tax rates remaining low. There is talk of maintaining the peak marginal rate at 21% or possibly lowering it to 15% for companies that manufacture their products in the U.S. This could encourage many influential publicly traded companies to repurchase their stock, improving earnings per share and making stocks more attractive to investors.

Following the passage of Trump’s Tax Cuts and Jobs Act in December 2017, there was a marked uptick in cumulative share buybacks for S&P 500 companies, averaging $100 billion to $150 billion in aggregate repurchases per quarter.

Investors anticipate strong market performance

However, there is substantial concern about the stock market’s current valuations.

The S&P 500’s Shiller price-to-earnings ratio, based on average inflation-adjusted earnings over the prior 10 years, recently stood at 38.69, more than double its historical average. This suggests a realistic chance of significant market corrections. While the prospect of the stock market underperforming over the next four years might not sit well with investors, there is a bright side to historical data.

Stock market corrections and bear markets are typical aspects of the investing cycle. Historically, bear markets have lasted around 9.5 months, while bull markets have averaged considerably longer durations. Long-term investors will note that investing in the S&P 500 for 20 years at any point since the start of the 20th century has proven profitable 100% of the time.

Whether the stock market thrives, flops, or treads water during President Trump’s second term, the long-term outlook for equities remains promising for patient investors.

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Kaitlyn covers all things investing. She especially covers rising stocks, investment ideas, and where big investors are putting their money. Born and raised in San Diego, California.