Get ready for the Trump recession:
History Offers an Ominous Warning Following President-Elect Donald Trump's Victory -- and the Stock Market May Pay the Price
SEAN WILLIAMS, THE MOTLEY FOOL
December 8, 2024 at 3:51 AM
It's been nothing short of a banner year for Wall Street and investors. As of the closing bell on Dec. 5, the ageless Dow Jones Industrial Average(DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and growth-centric Nasdaq Composite(NASDAQINDEX: ^IXIC) have respectively gained 19%, 27%, and 31% year to date.
Wall Street's two-year bull market has been fueled by a number of catalysts. For instance, the artificial intelligence (AI) revolution may provide a leap forward in growth potential for businesses. Additionally, operating results for Wall Street's most influential businesses have, for the most part, been better than anticipated.
But the latest catalyst for the stock market is arguably the most eyebrow-raising: President-elect Donald Trump's November victory.
Trump's return to the White House for a nonconsecutive second term in January will very likely pave the way for less stringent banking regulations, more merger and acquisition activity, and possibly a 29% reduction in the corporate income tax rate for domestic manufacturers. The proposals laid out by the former (and incoming) president are undeniably investor-friendly.
Unfortunately, history offers an ominous warning for Wall Street and the stock market as Donald Trump prepares to take office in just over six weeks.
Donald Trump making remarks at the Pentagon.
President Donald Trump giving remarks at the Pentagon. Image source: Official White House Photo by Tia Dufour.
Republican presidents and recessions go hand in handLet me preface the following discussion with an important caveat: There is no such thing as a guaranteed forecasting tool on Wall Street. Although some events, metrics, and predictive data points have an uncanny history of accuracy, there's no concrete guarantee of anything occurring in the stock market.
With that said, history shows an exceptionally strong correlation between Republican presidents in the White House and U.S. recessions.
Over the last 111 years, there have been 10 Republicans in the Oval Office and nine Democrats. Four of the nine Democrats to hold America's highest office did not oversee a recession that began under their tenure (key phrase!). This figure makes the logical assumption that President Joe Biden won't see a recession declared during his final six weeks in office, which would make him the fourth Democratic president to avoid a recession.
On the other end of the spectrum, Republican presidents have overseen 13 recessions since 1913, with every single GOP chief contending with a recession during their tenure. Donald Trump was the latest addition to this lengthy list due to the COVID-19 pandemic-driven recession.
While nothing is guaranteed, every Republican president for more than a century overseeing a recession is a worrisome correlation for Wall Street. Even though stocks and the U.S. economy aren't tethered at the hip, economic contractions would be expected to adversely impact corporate earnings.
What's more, a study from Bank of AmericaGlobal Research found that, between 1927 and March 2023, two-thirds of peak-to-trough drawdowns in the S&P 500 occurred during, not prior to, recessions being declared. In plainer English, stocks perform poorly when recessions occur.
Ominous warnings are mounting for the U.S. economy and stock marketAs Donald Trump readies to take office for his second term, he's going to inherit a challenging set of circumstances. While the Dow Jones, S&P 500, and Nasdaq Composite have all galloped to multiple record-closing highs in the wake of Election Day, ominous warnings for the U.S. |
