How Likely Is It That the Stock Market Crashes Under President Donald Trump in 2026? Here's What History Tells Us.

Core Viewpoint - The Shiller P/E ratio indicates that the stock market is currently at a historically high valuation, suggesting a potential for significant declines in the future, particularly under President Trump's administration in 2026 [1][2][3][9]. Valuation Insights - The S&P 500's Shiller P/E ratio has averaged approximately 17.3 since 1871, but as of December 29, it reached 40.59, the second-highest valuation in history [2][3]. - Historical data shows that the Shiller P/E has exceeded 30 on six occasions, with subsequent declines in major indexes ranging from 20% to 89% [8]. Market Performance Under Trump - During Trump's first term, the Dow, S&P 500, and Nasdaq saw increases of 57%, 70%, and 142% respectively, and similar performance was observed in the early months of his second term [5][6][7]. - The current high valuation of the stock market raises concerns about potential turbulence in 2026, as historical correlations suggest increased volatility during midterm election years [10][11]. Historical Context - Historical trends indicate that stock market volatility tends to rise during midterm election years, with average corrections of 17.5% since 1950 [11][12]. - All ten Republican presidents, including Trump, have overseen recessions during their terms, establishing a historical precedent that may suggest economic challenges ahead [13]. Economic Policies Impact - Trump's tariff and trade policies have been linked to declines in employment, productivity, sales, and profits for affected companies, which could contribute to stock market weakness [15][14]. Long-term Investment Perspective - Despite potential short-term downturns, historical data shows that long-term investments in the S&P 500 have consistently yielded positive returns over 20-year periods [22][24].