President Donald Trump’s return to the White House in 2025 has investors closely watching how his policies will impact the stock market. The Dow Jones, S&P 500, and Nasdaq Composite soared during Trump’s first term, fueled by corporate tax cuts and deregulation. However, Trump now faces a historically pricey market.
The S&P 500’s Shiller P/E ratio, based on inflation-adjusted earnings from the past decade, stands at 37.58. This is more than double the historical average of 17.19. In the past 154 years, there have only been six instances where the Shiller P/E topped 30, all followed by declines of 20% to 89% in major indexes.
The “Buffett Indicator,” which compares total stock market value to U.S. GDP, also hit an all-time high of 209% in December 2024. This far exceeds the 85% average since 1970, signaling overvaluation. History also shows a correlation between Republican presidencies and recessions.
Market anxieties under Trump’s leadership
Every Republican president since 1913 has faced a recession while in office, including Trump during the brief pandemic downturn. Despite these concerns, the stock market has consistently proven its ability to generate wealth over the long term.
Rolling 20-year periods since 1900 have generally yielded positive returns, even accounting for short-term crashes. Trump’s stance on cryptocurrencies has shifted positively, with plans to make the U.S. the “crypto capital of the planet.” Speculation about a potential U.S. bitcoin reserve could help drive prices higher. This renewed interest in crypto is also expected to fuel growth in the ETF market.
However, Trump’s proposed tariffs on imports raise concerns about inflation and the impact on American companies’ overseas profits. The uncertainty surrounding potential changes to corporate tax rates could also create market volatility. While the full scope of Trump’s policies remains unknown, investors should prepare for potential economic disappointments and market swings.
Staying focused on long-term investment strategies can help navigate any unexpected twists and turns in the market.