Afterward, this figure jumped to $200 billion to $250 billion in most quarters. Buyback activity can improve earnings per share (EPS) and make stocks more fundamentally attractive to investors.

There’s also the assumption that the Trump administration will foster deregulation. By moving to attenuate regulatory oversight, the red carpet will likely be rolled out for a rise in merger and acquisition activity.

During President Barack Obama’s eight years in office, in addition to the combined eight years of President Trump’s and Joe Biden’s tenure within the White House, the stock market delivered decisively positive returns. Based on the catalysts listed above, Wall Street is expecting more gains when Trump leaves office in January 2029.

Nevertheless, there’s an enormous reason to consider President Trump may oversee the primary decline within the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite since George W. Bush’s second term, which led to January 2009. In other words, we’d witness the primary negative stock market returns for a presidential term in 20 years.

To be abundantly clear (note the italics, because that is a vital point), the potential for stocks to go lower over the following 4 years has nothing specific to do with President Trump’s policy proposals. In actual fact, the catalyst that might send stocks notably lower awaited whichever candidate won the 2024 election.

The largest concern for Wall Street during Trump’s presidency is that the stock market is historically pricey — and there is simply no quick fix for prolonged valuations.

Though there are numerous ways to measure “value” on Wall Street, the S&P 500’s Shiller price-to-earnings ratio (P/E) does probably the most comprehensive job. The Shiller P/E ratio can be commonly often called the cyclically adjusted P/E ratio, or CAPE Ratio.

Unlike the normal P/E ratio that relies on trailing-12-month EPS to decipher if a stock is reasonable or pricey relative to its peers and/or the broader market, the Shiller P/E relies on average inflation-adjusted EPS over the prior 10 years. Analyzing 10 years’ price of earnings history ensures that shock events cannot skew the calculation.

As of the closing bell on Jan. 22, the S&P 500’s Shiller P/E stood at 38.69, which is just shy of its high throughout the current bull market rally. It is also greater than double the common reading of 17.19, when back-tested to January 1871.

Although the Shiller P/E is not a timing tool, it does have a flawless track record of eventually foreshadowing bear markets for Wall Street. Spanning 154 years, there have been only six instances where the Shiller P/E has surpassed 30 during a bull market rally, including the current. Following the prior five occurrences, the Dow Jones and/or S&P 500 shed no less than 20% of their value, if not considerably more.

History would suggest there’s a practical probability of the Dow Jones, S&P 500, and Nasdaq Composite ending within the red when President Donald Trump’s second term is over.

While the prospect of the stock market going nowhere or ending lower over the following 4 years won’t sit well with investors, there is a brilliant side to historic data, as well.

On one hand, there is not any denying that stock market corrections and bear markets are perfectly normal facets of the investing cycle. Regardless of how much well-wishing investors do, there’s an abundance of catalysts that may tip a dear stock market over the sting.

Alternatively, there is a nonlinearity to the investing cycle that strongly favors (and rewards) patient investors.

In June 2023, shortly after the widely followed S&P 500 was confirmed to be in a recent bull market, the analysts at Bespoke Investment Group released an information set on X that compared the length of each bull and bear market within the benchmark index dating back to the beginning of the Great Depression in September 1929.

As you’ll be able to see, the common bear market within the S&P 500 has lasted only 286 calendar days (around 9.5 months) covering a span of 94 years. On the opposite end of the spectrum, the 27 bull markets since September 1929 have endured for a median of 1,011 calendar days, or greater than 3.5 times so long as the everyday bear market.

A separate evaluation from Crestmont Research looked back to the beginning of the twentieth century and located much more compelling results for long-term investors.

Crestmont calculated the 20-year rolling total returns (“total” meaning inclusive of dividends) for the S&P 500 dating back to 1900. This resulted in 106 rolling 20-year periods, with ending years of 1919 through 2024.

Here’s the kicker: All 106 rolling 20-year periods generated a positive total return. Hypothetically speaking, purchasing an S&P 500 tracking index at any point for the reason that starting of the twentieth century and holding that position for 20 years would have been profitable 100% of the time.

No matter whether the stock market thrives, flops, or treads water during President Trump’s second term, the long-term outlook for equities stays promising.

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Sean Williams has no position in any of the stocks mentioned. The Motley Idiot has no position in any of the stocks mentioned. The Motley Idiot has a disclosure policy.

Prediction: Stock Market Returns Will Achieve a Level Not Witnessed in 20 Years Under President Donald Trump was originally published by The Motley Idiot