Donald Trump begins his second term in the White House and does so with the stock markets at a high point. Never before has a president of the United States been inaugurated with such a high price-to-earnings ratio (PER), the indicator that measures the price of shares in relation to the company’s business profits. Although most experts expect his legislature to favor economic growth and equities, the starting point is demanding.
In his first time as president, the S&P 500 did very well, although the index was not that expensive. Since he took office until his last day in office, from January 20, 2017 to January 20, 2021, the blue chip rose 58%. It rose 18% in 2017, lost 6.2% in 2018, accelerated 28.8% in 2019, gained 16.3% in 2020 and 1.1% in its few days of 2021. That is, the American index lived a sweet first term, even with the coronavirus pandemic surprising the entire world.
But the S&P 500 It is 33% more expensive now than when Trump’s previous term began. In real terms, discounting inflation for that period, the index is 25% more expensive, based on its PE ratio. The average annual inflation during the years of his mandate was 2%.
In addition, there is a more specific indicator that reflects that this past Monday, January 20, with the politician’s return to the Oval Office, the PER has been the most expensive in all of American history on an inauguration day. Specifically, the CAPE ratio or Shiller PE ratio is taken as a reference, a PE that measures how cheap or expensive the global stock market is (not just the S&P 500), measuring ten-year periods to mitigate more specific fluctuations and discounting inflation. . In an analysis of The Wall Street Journalmeasures which president since Herbert Hoover has taken the reins of the country with the most expensive stock market.
Ronald Reagan arrived at the most affordable time, followed by Barack Obama, Bill Clinton, Herbert Hoover, Trump’s first term, Joe Biden and Trump’s second term, in order from cheapest to least. The current president has it more complicated, because the more expensive a stock is, the more difficult it is for the benefits to justify its valuation. That’s why, Profitability can be elusive if you look at the short term.
An alternative is to buy shares outside the United States and look for value in other markets, since the American stock market is especially expensive in relation to other global indices. It is a way to mitigate the high price of buying US securities.
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