The 15.92% Average Gain in Inauguration Year: Will Trump's Second Term Echo the Trend?

With Trump on the verge of beginning his second term, the fervor for the “Trump Trade” in global financial markets shows no sign of abating. However, the S&P 500 witnessed a significant pullback in the last three trading days of 2024, prompting investors to closely scrutinize the market trends in 2025.

Although there is significant uncertainty ahead, we can look back at history to explore some interesting phenomena that can guide the future market. Back in 2017, the first year of Trump’s initial term, the U.S. stock market delivered a stellar performance, with the S&P 500 index surging by as much as 19.42% over the course of the year. A deep dive into historical data reveals an intriguing pattern: since 1993, in the inaugural years of presidents, the S&P 500 index has averaged a gain of 15.92%, peaking at an impressive 31.03%. The rationale behind this is not hard to fathom. In the first year of a new president’s tenure, they are typically preoccupied with fulfilling key campaign pledges, tilting policies in favor of their supporters.

Did Trump make any key moves in the first year of his first term that influenced the stock market? The answer is yes. In 2017, he aggressively drove policy implementation. Let's take a brief look back.

On his inauguration day, January 20th, he announced the repeal of the Affordable Care Act. On April 18th, he issued the “Buy American, Hire American” executive order, propelling domestic manufacturing stocks and sending related corporate share prices upward. On June 1st, he declared the U.S. withdrawal from the Paris Agreement, triggering an immediate rally in the share prices of traditional fossil fuel companies. For instance, Occidental Petroleum saw a 2.68% gain on that very day. On December 22nd, he signed the Tax Cuts and Jobs Act, slashing corporate income tax substantially and fueling soaring profit expectations for listed companies, igniting the enthusiasm for U.S. stocks and luring investors to flock in.

With less than a month until Trump's return to the White House, a review of his past tenure and the policy direction for 2025 can be broadly summarized as follows: significant fiscal stimulus, domestic tax cuts, tariffs on foreign goods, deregulation, cracking down on illegal immigration, focusing on technology industry policies, and promoting the development of fossil fuels. Based on these policies, securing investment opportunities in 2025 is anticipated to be less challenging.

Donald Trump's propositions regarding slashing corporate taxes and reducing regulations are commonly perceived as being favorable to the market. To promote economic development and create job opportunities, he has proposed reducing the corporate tax rate to 15%. They are believed to drive economic expansion and enhance corporate profits. His infrastructure proposals are anticipated to stimulate the demand for construction materials as well as services. In addition, Trump's immigration policies might lead to a greater demand for detention facilities.

Morgan Stanley is also optimistic about the trend of U.S. stocks in 2025. It believes that with the Federal Reserve's interest rate cut next year and the continuous improvement of business cycle indicators, the momentum of earnings growth will continue to expand in 2025, and the "bull market scenario" is unfolding. It has raised its target price for the S&P 500 index to 6,500 points by the end of 2025.