Will the Stock Market Crash in Year 2 of Donald Trump's Second Term? Several Historically Correlated Events Offer a Clear Answer.

Core Viewpoint - The article discusses the potential for a stock market correction during the second year of Donald Trump's presidency, supported by historical data and correlations, particularly focusing on the Shiller P/E Ratio and midterm election impacts. Group 1: Shiller P/E Ratio Insights - The Shiller P/E Ratio, or CAPE Ratio, has averaged 17.34 over the last 155 years but was at 40.35 as of February 11, indicating the second-highest stock market valuation in history, only behind the dot-com era [1][2] - Historical data suggests that Shiller P/E Ratios above 30 typically signal trouble for stocks, with previous instances leading to declines of 20% or more in major indices [7] Group 2: Market Performance Under Trump - Since Trump's second term began on January 20, 2025, major indices have seen significant gains: Dow up 15%, S&P 500 up 16%, and Nasdaq up 18% as of February 11 [5] - During Trump's first term, the Dow, S&P 500, and Nasdaq gained 57%, 70%, and 142% respectively, showcasing a strong market performance [6] Group 3: Historical Correlations and Market Corrections - Historically, midterm election years have led to larger stock market corrections, with an average peak-to-trough downturn of 17.5% for the S&P 500 since 1950 [13] - The S&P 500 fell nearly 20% during the midterm elections of Trump's first term, indicating a pattern that could repeat [13] Group 4: Technology and Market Bubbles - The article highlights that every major technological innovation over the past three decades has experienced a bubble-bursting event, suggesting that current investments in AI may face similar risks [8][10] - While companies are heavily investing in AI infrastructure, there are concerns about the optimization of these technologies to enhance corporate profitability [10] Group 5: Long-term Market Outlook - Despite short-term corrections, historical data shows that bear markets are typically short-lived, averaging 286 calendar days, while bull markets last significantly longer, averaging 1,011 calendar days [21] - The article emphasizes the importance of a long-term perspective for investors, as corrections and crashes tend to be temporary [18][21]