The S&P 500 (^GSPC -1.76%) was introduced in March 1957 and it has since become synonymous with the U.S. stock market. The index has declined about a percentage point since President Donald Trump took office in January. Will that downward momentum crescendo into a market crash, or will stocks soar in the remaining years of his second term?

The answer may be both. Investors hoping to catch a glimpse of the future should start by looking at the past. Here are the important details.

President Donald Trump listens to a reporter's question. Image source: Official White House Photo by Andrea Hanks.

History says the stock market could soar under President Trump

Importantly, the president does not control the stock market or the economy. But they influence both through the fiscal, trade, and regulatory policies they promote, and the people they select to lead government agencies like the Treasury, the Securities and Exchange Commission, and the Federal Reserve.

President Trump signed into law the Tax Cuts and Jobs Act in 2017. That legislation reduced individual and corporate taxes, which helped boost economic growth. In fact, U.S. gross domestic product (GDP) increased at 2.7% annually from 2017 to 2019, a full percentage point faster than the average over the previous decade.

Having said that, the president in some circumstances has zero control over the economy. For instance, GDP declined sharply in 2020, when the COVID-19 pandemic forced business closures and social distancing across the country.

Overall, the S&P 500 performed very well during Donald Trump's first presidency. In fact, since its creation in March 1957, the index performed better under Trump than under any other president except Bill Clinton, as the following chart shows.

Data sources: YCharts, The American Presidency Project. Returns are generally measured from one Inauguration Day to the next. The assassination of John Kennedy and resignation of Richard Nixon are exceptions.

Past performance is never a guarantee of future results, but history makes it clear that the U.S. stock market could soar during Trump's second presidency. His track record speaks volumes, and he has proposed further tax cuts that could boost corporate profit margins for domestic manufacturers, potentially leading to faster than anticipated earnings growth. That could certainly push the S&P 500 higher.

History says President Trump's tariffs could drag the stock market down

While the S&P 500 performed well during the first Trump presidency, the circumstances are very different today. The first important difference is the elevated valuation of the stock market. Warren Buffett once said the ratio of stock market capitalization to GDP was "probably the best single measure of where valuations stand at any given moment."

That metric, commonly referred to as the Buffett Indicator, reached a record high of 207% in February 2025. That means the aggregate market value of U.S. public companies is three times greater than domestic GDP. Comparatively, the Buffett Indicator was less than 125% when Trump took office in 2017, and it never topped 180% during his first term.

Another important difference are the tariffs President Trump has either already imposed or plans to impose on imports from China, Canada, Europe, and Mexico. The Tax Foundation, an independent research organization, estimates the proposed tariffs would increase the average U.S. tariff rate across all imports to 13.8%, a level not seen since 1939.

That estimate implies an increase of more than 10 percentage points from the average tariff rate of 2.5% in 2024. And Goldman Sachs estimates every 5-point increase in the average tariff rate could reduce S&P 500 earnings by up to 2%, which means a 10-point increase may reduce corporate earnings by 4%. That could drag the stock market down, at least in the short term.

For instance, the S&P 500 suffered an intrayear decline of 20% in 2018, and one reason for that decline were tariffs implemented or implied by President Trump. However, those tariffs led to a mere 2-point increase in the average rate across all imports. Trump has outlined a much more aggressive plan this time, which means the S&P 500 could fall more sharply.

Here is the bottom line: History says the S&P 500 will perform well under President Trump, but it also suggests possible turbulence arising from elevated valuations and tariffs. The most prudent actions investors can take are to (1) consider valuation before buying stocks, (2) limit stock purchases to their very best ideas, (3) build a cash position in their portfolios, and (4) prioritize long-term returns over short-term gains.

Stock market corrections and bear markets are unavoidable. The S&P 500 at some point will crash again. But rather than panicking, investors should treat the next drawdown as a chance to buy their favorite stocks at a discount. The S&P 500 has recovered from every past drawdown and there is no reason to think the next one will be different.