President Donald Trump took office on January 20th, marking a new era in Wall Street. Investors are excited about the prospect of less oversight and potential tax rate cuts, which has propelled financial stocks higher. However, experts warn that this may be ominous stock market history.
The S&P 500’s Shiller P/E Ratio, also known as the cyclically adjusted P/E Ratio (CAPE Ratio), is a key metric to measure “value” on Wall Street. This ratio provides an apples-to-apples valuation measure by using average inflation-adjusted earnings history over the prior 10 years. As of January 17th, the S&P 500’s Shiller P/E sat at 38.11, the highest reading for an incoming president dating back to January 1871.
A total of six instances where the Shiller P/E has surpassed 30 during a bull market have occurred since 1871, with the Dow Jones, S&P 500, and/or Nasdaq Composite shedding 20% to 89% of their value in previous peak-to-trough downturns. This raises concerns that premium valuations aren’t sustainable.
Despite this, history suggests that premium valuations for stocks aren’t sustainable over very long periods. According to Bespoke Investment Group’s data set, the average bull market has endured for 1,011 calendar days, which is about 3.5 times as long as the typical bear market of 286 days. Crestmont Research also found that buying and holding an S&P 500 tracking index for 20 years has been a profitable investment 100% of the time since the start of the 20th century.
While President Trump’s policies may be viewed as favorable to corporate America, inheriting one of the priciest stock markets in history may pave the way for a bear market or short-lived crash during his second term. However, the long-term upward trajectory for equities remains firmly intact, offering investors a silver lining for their investments over the long term.
Source: https://www.fool.com/investing/2025/01/21/donald-trump-stock-market-history-ominous-warning