Trump’s 2025 return sparks market scrutiny

Andrew Dubbs
3 Min Read
Trump's return

Donald Trump’s return to the presidency in 2025 has investors closely watching the stock market for potential impacts. Historical trends and current economic indicators provide insights into what we might expect. When 2024 ended, major stock indexes were riding high.

The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all posted significant gains. The rise in artificial intelligence advancements and better-than-expected corporate earnings were major factors driving this bull market rally. During Trump’s first term, the stock market experienced substantial growth.

This was largely attributed to his economic policies, such as lowering the corporate income tax rate and encouraging deregulation. However, Trump will be making history when he takes office again, inheriting one of the priciest stock markets on record. The S&P 500’s Shiller P/E ratio, which adjusts earnings for inflation over the previous decade, suggests that the market is significantly overvalued.

Historically, whenever the Shiller P/E ratio has been above 30, markets have eventually experienced declines ranging from 20% to 89%.

Trump’s impact on stock market

The “Buffett Indicator,” which compares the market capitalization of all publicly traded companies to the U.S. gross domestic product, was also at an all-time high at the end of 2024.

Another historical pattern to consider is the relationship between Republican presidencies and economic recessions. All ten Republican presidents since 1913 have experienced a recession during their terms, including Trump, who led the country through a short-lived recession during the pandemic. While the U.S. economy and the stock market are not perfectly correlated, economic downturns usually negatively impact corporate earnings, which can lead to market declines.

Most stock market downturns have occurred during recessions. Despite these concerns, history also suggests that markets recover and generate long-term wealth. Analyses show that while bear markets are shorter, bull markets last significantly longer.

Crestmont Research’s examination of the S&P 500’s annual total returns over rolling 20-year periods since 1900 indicates that, regardless of short-term declines, long-term investments have historically yielded positive returns. In summary, while a stock market crash under President Donald Trump in 2025 is a possibility given historical patterns and current valuations, long-term investors are likely to see healthy returns over time. Investors should remain informed and prepared for market volatility, while keeping a long-term perspective in mind.

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Andrew covers investing for considerable.com. He writes on the latest news in the stock market and the economy.