Will a Stock Market Correction Happen Under Trump?
Written by
David Nadelle
Edited by
Levi Leidy
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
With the election over and President Trump in office, investors are waiting to see how the new administration’s policies could impact capital markets in 2025. Many believe a market pullback is on its way, but it might have very little to do with what happened on Nov. 5.
“The odds of a correction occurring during Trump’s second term are high, not because the risk is necessarily higher or lower given the Trump administration’s likely policies, but because stock market corrections are simply common occurrences,” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Heider College of Business, Creighton University.
The reality is that under any administration, including one led by Donald Trump, the probability of a stock market correction is determined by a number of market and economic variables rather than by the actions of a single person.
Presidential policies might have an impact on market patterns, but factors like overvalued markets, interest rate increases, economic slowdowns and geopolitical instability play a bigger role in creating a stock market correction.
What Is a Stock Market Correction?
Commonly defined as a 10% decline (but less than 20%) in stock prices from recent highs, corrections are a natural part of a stock market’s peaks and valleys. Some investors swear by corrections as great opportunities to “buy the dip,” but depending on the size and mix in your portfolio, a correction could be seen as a financial blip or an unmitigated disaster to an investor.
“On average the market has declined 10% or more every 1.2 years since 1980, making corrections very common,” said Johnson. “However, stock market crashes, defined as declines of more than 20%, are fortunately much less common. Since 1950 there have only been 13 declines in the S&P 500 of more than 20%. The latest decline of more than 20% (specifically, -24.82%) occurred in late 2021 through October 2022.”
Is a Stock Market Correction Coming?
Like Johnson, Patrick Di Cesare, founder of the financial education platform Basic Financial Literacy, feels a correction is nigh, but it might just be a phase that investors will need to simply ride out. “To answer your question about will a stock market correction happen, probably. But not solely because of Trump,” he said. “Corrections of 20% or more happen once every five years on average, it happened in 2018, 2020 (due to COVID) and 2022, yet the S&P 500 is still up 82% in the last five years.”
Yet, there are those predicting the U.S. economy will stave off a correction for the foreseeable future, like Adam Ferrari, CEO of Phoenix Capital Group, who told GOBankingRates that “Trump’s policies are set to keep the markets bullish, especially for sectors like energy and industrial.
“Tax cuts, deregulation and a push for energy independence are good for domestic production and profitability, which naturally boosts investor confidence,” said Ferrari. “Inflation concerns/trade negotiations might cause some short-term volatility, but overall economic growth and job creation should help prevent a significant market correction in 2025.”
However, while stock market trends are primarily driven by broader economic factors, market sentiment and global events, Americans can’t completely rule out a correction triggered specifically by extreme mandates and aggressive sanctions by Trump.
While he concedes that the there are many scenarios, David Russell, global head of market strategy at TradeStation, also noted that “Trump’s proposed policy changes could impact both the economy and growth.
“Higher tariffs may spur inflation and threaten domestic jobs reliant on imported components,” said Russell. “It could also make businesses delay hiring until they have clarity. The immigration rules, and deportations in particular, could impact consumer spending. Based purely on the numbers, they could be a negative for the economy and earnings.”
It may seem like a cop-out, but no one knows what to expect once Trump begins his second term and if any of his proposed tactics to “reignite explosive economic growth” will significantly impact the market enough to cause a correction.
As an investor, you can’t lose your head by following unsound advice or trying to time the market. “The human brain is wired to think that if a certain person gets elected, a certain law gets passed, etc., the stock market will go up/down, said Di Cesare. “But there’s so many different factors at play, that predicting short term movements of the overall market is impossible.”
Reassessing risk, having a diversified portfolio and maintaining the discipline to stick with your long-term plan through periods of volatility are the keys to lasting investment success — and that’s good advice, no matter who is president.
More From GOBankingRates
