How Likely Is a Stock Market Crash Under President Donald Trump? Several Century-Old Data Sets Offer an Answer.

Core Insights - The Shiller P/E Ratio, or CAPE Ratio, historically indicates significant declines in major stock indexes when it exceeds 30, with past instances leading to declines between 20% and 89% [1][2][3] - The current CAPE Ratio is between 39 and 41, marking it as the second-highest valuation in history, compared to a long-term average of 17.3 for the S&P 500 over the last 155 years [2][3] - Historical data suggests a correlation between U.S. recessions and the political party in the White House, with all 10 Republican presidents since 1913 overseeing the start of a recession, while only 4 out of 9 Democratic presidents experienced the same [8][9] Market Performance - During President Trump's first term, the Dow, S&P 500, and Nasdaq saw cumulative returns of 57%, 70%, and 142% respectively [7] - Since Trump's second term began, the Dow, S&P 500, and Nasdaq have risen by 14%, 16%, and 20% respectively, reaching multiple record-closing highs [6] Midterm Elections Impact - Midterm election years historically lead to increased volatility in the stock market, with the average drawdown for the S&P 500 being 17.5% since 1950 [10][11] - The S&P 500 fell nearly 20% during the second year of Trump's first term, indicating potential for similar corrections in the current midterm election year [10] Long-term Outlook - Despite potential short-term declines, historical data shows that all rolling 20-year periods of the S&P 500 have produced positive annualized returns, suggesting that long-term investors may benefit from patience [20]