If you have not noticed, the bulls hold the Wall Street firmly. The second year of current bull market has experienced forever Dow Jones’ industrial average(Djindices: ^Dji)measure S & P 500(Snpindex: ^GSPC)and stimulated by growth Nasdaq Composite(Nasdaqindex: ^ixic) Increase by 13%, 23%and 29%, respectively, with all three indexes reached numerous record highest levels when closing.
Professional and daily investors gathered around many catalysts, including the rise of artificial intelligence (AI), the resistance of the American economy, the decline in the prevailing rate of inflation and excitement over the division of shares.
President Trump at the meeting of the National Policy Council 2020. The source of the painting: the official photo of the White House Tia Dufour, the kindness of the National Archives.
But the rise of Wall Street was really heading to a higher speed in November after Donald Trump’s victory on the day of choice. President Trump’s first term in the White House brought an increase in Dow Jones, S&P 500 and Nasdaq Compositea by 57%, 70%and 142%and 142%. Although past success is not a guarantee of future results, it is a clear indication that investors seek re -performance during Trump’s second term.
Although it has been stated before President Trump that they will achieve yields on the stock market that has not been recorded for 20 years, the end result can be dramatically different from initial expectations.
Before we dig deeper, it is important to understand the dynamics behind the increase in the DOW, S&P 500 and Nasdaq Composite in November after Trump’s victory.
Perhaps the largest catalyst for shares is to remove the possibility of increasing the tax rates on the profit of the company from the table. While the presidential candidate of the Democratic Party Kamala Harris invited to an increase of 33% of the largest boundary tax rates on the company’s profit tax, President Trump said it should be further reduced.
In particular, he pointed out to reduce the largest border rates with 21 %-which is already the lowest level of 1939.-15 % for companies that produce its products in the US
Advocating to this point, keeping the highest marginal tax rate for the profit of the company’s profit at the lowest level in 86 years – or perhaps even further lowering – should encourage many of the US most influential public companies to buy their shares.
After the adoption of Trump’s leading law on the reduction of taxes and employment (TCJA) in December 2017, there was a significant increase in cumulative redemption of SS & P 500 companies. From 2011 to 2017, the S&P 500 companies on average had about $ 100 to $ 150 billion in total redemption per quarter.
Later, the figure jumped to $ 200 to $ 250 billion in most quarters. Redemption activity can improve earnings per share (EPS) and make shares more fundamentally more attractive investors.
There is also a belief that Trump’s administration will encourage deregulation. Minimizing regulatory supervision will open a red carpet to increase the activity and download activity.
Over the eight years of the term of office of President Barack Obama, as well as the common eight years of the term of office of President Trump and Joe Biden at the White House, the stock market made decisively positive return. Based on the above catalysts, Wall Street expects more gains when Trump leaves the office in January 2029.
However, there is a great reason to believe that President Trump could supervise the first drop At Dow Jones Industrial Average, S&P 500 and Nasdaq Composite since the second term of George W. Bush, who ended up in January 2009. In other words, we would witness the first negative surveyors for the presidential term in 20 years.
Be Obviously clearly (Pay attention to ital, because this is an important point), the potential for the shares to fall over the next four years has nothing to do with the political proposals of President Trump. In fact, the catalyst that could significantly fall in the shares was waiting for any candidate to win the 2024 elections.
The biggest concern for Wall Street during Trump’s presidential term is that the stock market is a historically gathering – and there is simply no quick solution for enlarged estimates.
Although there are a number of ways to measure “values” on Wall Street, S&P 500 Shiller’s price and earning ratio (p/e) makes the most comprehensive job. Shiller’s P/E ratio is also known as a cyclically custom P/E ratio, or Cape ratio.
Unlike the traditional P/E ratio that relies on EPS in the last 12 months to decipher whether the stock is cheap or expensive compared to competitors and/or the wider market, Shiller’s P/E is based on the average EPS adapted for inflation over the previous 10 years. In 10 years, the analysis of the history of earnings ensures that shock events cannot distort the calculation.
To the conclusion bell of January 22, the Shiller P/E of the S&P 500 index was 38.69, which is slightly less than its highest level during the current increase in the bull market. This is also more than twice as much as an average reading of 17.19, when it is tested back by January 1871.
Although Shiller P/E is not a tool for measuring time, it has a impeccable record that he eventually hinted at the bear market for Wall Street. In the range of 154 years, there were only six cases in which Shiller P/E exceeded 30 during the increase in the bull market, including the present. After the previous five appearances, DOW Jones and/or S&P 500 lost at least 20% of their value, if not significantly more.
History would suggest that there is a real chance of Dow Jones, S&P 500 and Nasdaq Composite ended up in the minus when the second term of President Donald Trump is over.
Picture source: Getty Images.
Although the chances of the stock market will not stop anywhere or will end the lower over the next four years, they may not like investors, there is also a bright side of historical data.
On the one hand, it cannot be denied that the corrections of the stock market and bear market are perfectly normal aspects of the investment cycle. No matter how well -intentioned investors work, there is an abundance of catalysts that can roll over the expensive stock market over the edge.
On the other hand, there is a nonlinearity of a cycle of investment strongly favors (and rewards) patient investors.
In June 2023, shortly after it was confirmed that the S&P 500 was widely followed in the new growth market, analysts of Bespoke Investment Group published a set of data on X which compares each bull market and bear market in the reference index dating from the onset of the great depression in September 1929.
As you can see, the average bears market in the S&P 500 lasted only 286 calendar days (about 9.5 months), covering a range of 94 years. On the other hand, the spectrum, 27 bull markets since September 1929, have withstands an average of 1011 calendar days, or more than 3.5 times longer than a typical bear market.
A separate Crestmont Research analysis referred to the beginning of the 20th century and found even more convincing results for long -term investors.
Crestmont calculated 20-year-old current total return (“total” which means including dividends) for the S&P 500 dating from 1900. This resulted in 106 current 20-year periods, with the final years from 1919 to 2024.
Here’s an excitement: all 106 current 20-year periods generated a positive total refund. Hypothetically speaking, the purchase of the S&P 500 tracking index at any time from the beginning of the 20th century and posture of that position for 20 years would be profitable in 100% of cases.
Regardless of whether the market market progresses, falls or treads water during the second term of President Trump, the long -term prospect of shares are still promising.
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Sean Williams has no position in any of the stated shares. Motley Fool has no position in any of the shares mentioned. Motley Fool has a Data detection policy.
