On November 6, 2024, Donald Trump was elected as the 47th president of the United States, securing 312 electoral votes. While his first term saw significant stock market gains — with the Dow Jones up 57%, the S&P 500 up 70%, and the Nasdaq up 142% — he inherits a market with historically high valuations, signalling potential turbulence ahead.
- Shiller P/E Ratio:
- Current level: 38.20 (double the 153-year average of 17.17).
- Comparable peaks: Before the dot-com bubble and late 2021/early 2022.
- Buffett Indicator:
- Measures market cap-to-GDP.
- Hit 206%, far above the 85% historical average.
- Previous peaks: 144% (dot-com bubble) and 107% (2008 financial crisis).
- Correction Risks:
Both indicators suggest heightened risk of a market correction.
Silver Linings
- Economic Cycles:
- Post-WWII recessions typically resolve in less than a year.
- Economic expansions last disproportionately longer than contractions, fostering corporate growth.
- Bull vs. Bear Markets:
- Average bear market: 286 days (9.5 months).
- Average bull market: 1,011 days (3.5 times longer).
- History shows patience is rewarded for investors.
- Unified Republican Leadership:
- Historically, the S&P 500 has delivered an average annual return of 14.52% under unified GOP control.
While Trump faces a historically overvalued market, long-term trends and economic resilience offer hope for investors. Patience and focusing on market fundamentals will likely be key in navigating the challenges ahead.
