Crunching the Numbers: Comparing Trump’s Impact on the Stock Market in 2016-2017 vs. 2024-2025
The last two years have seen significant P/E expansion
When Donald Trump was elected President in 2016, the stock market experienced a significant rise. Investors were hopeful about Trump’s promises of tax cuts and deregulation, which they believed would boost corporate profits. This optimism led to a period of P/E expansion, with stock prices rising faster than earnings.
2025 may see P/E contraction
As we look ahead to 2025, there is a possibility that we may see P/E contraction. This means that stock prices could fall relative to earnings, as investors become more cautious about the future outlook for corporate profits. While the market may still be up in 2025 and have a positive return, the return may be less than the +13% expected EPS growth next year.
Will Trump’s Administration lead to another year of +20% returns in 2025?
It’s possible that under the Trump Administration, we could see another year of +20% returns in 2025. However, history suggests that the odds are against such a scenario. Sustained periods of high stock market returns are rare, and it is more likely that we will see a more modest increase in stock prices.
How will this impact me?
As an investor, the potential for P/E contraction in 2025 means that you should be cautious about expecting high returns from the stock market. It may be a good time to reassess your investment strategy and consider diversifying your portfolio to mitigate risk.
How will this impact the world?
The performance of the stock market has broader implications for the global economy. A period of P/E contraction could signal that investors are less confident about future economic growth, which could lead to a slowdown in investment and overall economic activity. This could have ripple effects that are felt around the world.
Conclusion
In conclusion, while the stock market has experienced significant growth in recent years, there is a possibility that we may see a period of P/E contraction in 2025 under the Trump Administration. Investors should approach the upcoming year with caution and be prepared for a more moderate increase in stock prices.
