Approaching Liberation Day 2.0 in 9 days, speculation surrounds the potential stock market impact of a hypothetical "Trump Dump."
The analysts at Crestmont Research have updated a published data set that examines the rolling 20-year total returns of the S&P 500, dating back to the start of the 20th century. This update comes amidst the current bull market, which has seen the Shiller P/E ratio of the S&P 500 surpass 30, as it did on six occasions since 1871.
The most recent instance, in December 2022, saw the Shiller P/E ratio hit 38.89, the highest multiple in the current bull market and the third-priciest multiple during a continuous bull market since January 1871.
President Trump's tariff and trade policy announcements, such as the one on April 2, 2025, have been a significant catalyst for market volatility. The S&P 500 experienced its fifth-largest two-day percentage decline since 1950, followed by its largest single-day point gain since its inception.
The economic and market impact of Trump's tariffs has been substantial. Tariffs and retaliatory measures reduced U.S. GDP by approximately 0.9%, causing sharp disruptions, notably in sectors like agriculture (e.g., a 40% drop in soybean prices). The tariffs increased costs for industries reliant on imports of raw materials and complex supply chains, including automotive, construction, and technology sectors. Major automakers like Toyota, Honda, Ford, and GM faced profit declines linked to tariffs. Apple and Amazon also experienced tariff-induced cost pressures due to overseas manufacturing and imports.
Market volatility spiked dramatically around tariff announcements, with a greater-than-10% two-day drop in the S&P 500 and the third-largest weekly volatility spike in history in April 2025. However, the market rebounded strongly afterward with a 26% surge over three months.
Tariffs contributed to inflationary pressures that complicated the Federal Reserve's balancing act between growth and inflation control, also compounded by political interference and threats directed at the Fed, which increased market uncertainty.
Despite these headwinds, the S&P 500 has maintained a high valuation premium in 2025, trading at about 22.5 times forward earnings. This premium reflects optimism but also elevated risk due to speculative excess and economic uncertainty.
Investors have adapted by emphasizing diversification, inflation hedging (e.g., TIPS, gold), and shifting toward cyclical sectors favored by Trump's policy stances (energy, manufacturing) while managing risks in tariff-exposed industries.
Despite some rolling 20-year periods navigating wars, depressions, pandemics, and various bubbles, all 106 periods produced a positive annualized total return for investors. Half of these periods examined generated annualized returns ranging from 9.3% to 17.1%.
However, weakness has been the norm when President Trump initially announces and/or implements tariffs. Yet, another "Trump dump" of stocks seems unlikely, as the market has shown resilience in the face of these announcements. Wall Street's bigger concern than Trump's tariffs is the stock market's historically pricey valuation.
In summary, Trump's tariffs have imposed measurable costs on GDP, corporate profits, and market stability, triggering volatility and inflation challenges. Despite this, the S&P 500 has maintained a high valuation premium in 2025, a situation that, based on historical precedents, underscores vulnerability to correction amid ongoing economic and policy uncertainties.
[1] https://www.nytimes.com/2018/03/09/business/trade-china-soybeans.html [2] https://www.cnbc.com/2025/04/10/stocks-rebound-after-tumultuous-week-as-markets-digest-trumps-tariff-threats.html [3] https://www.reuters.com/article/us-usa-trade-tech/trump-tariffs-put-pressure-on-tech-companies-idUSKBN1H22KO [4] https://www.barrons.com/articles/stocks-selloff-coronavirus-market-volatility-51587155935 [5] https://www.cnbc.com/2025/04/10/stocks-rebound-after-tumultuous-week-as-markets-digest-trumps-tariff-threats.html
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