The stock market has never looked like this, no matter who is president

As President-elect Donald Trump prepares to begin his second term in office, investors are discussing how his proposed policies will impact the stock market. While the answer may not be clear, what is clear is the great position the market is in while he is at the helm of the country.

For example, 2024 will mark the second consecutive year in which the S&P 500 (^ GSBC) rose more than 20%, a feat not seen since 1997-1998.

There were several reasons behind the massive gains: The Federal Reserve Interest rates were cut for the first time in nearly four years in 2024 and followed by two additional cuts, effectively lowering the cost of borrowing, which is good for both businesses and consumers.

Corporate profit growth It accelerated during the year. Although The short growth panic that frightened investors in the late summerThe US economy ended 2024 on a solid footing. Enthusiasm about the prospects of generative AI has flared among investors, giving a boost to AI darling Nvidia (NVDA) and “her.”“The Magnificent Seven” Their peers.

Looking higher, most of last year’s gains were driven by a small number of players. In fact, the S&P 500 has never been so focused, with the top 10 stocks in the index… They constitute approximately 40% of the index. Many of those stocks, which include ““The Magnificent Seven” It has led the lion’s share of the gains over the past two years.

While many have called the S&P 500 index concentration A major risk to a bull marketIt was also a major reason why US stocks rose. Big Tech’s earnings have broadly outperformed those of 493 other companies in the S&P 500, supporting investors’ bias toward America’s biggest tech names.

Meanwhile, the S&P 500’s current high valuation, which sits at a 21.5 12-month price-to-earnings ratio, per FactSet, is well above the five-year average of 19.7 and the 10-year average of 18.2. At 21.5, the S&P 500’s valuation was only higher than this level during 2021’s post-pandemic boom and dot-com bubble.

Several Wall Street strategists have noted that the index’s increasing tilt toward big technology companies supports the high valuation levels.

“50% of the market today is low-growth caps, technology companies, healthcare, high-margin industries,” said Savita Subramanian, head of equity and quantitative strategy at Bank of America Securities. He told Yahoo Finance In December. “Whereas in the 1980s, 70% of it was manufacturing. So I think the practice of comparing current multiples to historical averages is fraught with problems.”

The story continues

Overall, this looks to be a great moment for stocks. But it is unclear whether the market optimism will continue, especially as investors wonder how far the Fed will continue to cut interest rates in 2025 – or whether the central bank will continue to do so. It will absolutely reduce your borrowing costs.

When considering that US equity valuations are already rich, it “doesn’t take much” to analyze, Evan Brown, of UBS Asset Management, told Yahoo Finance in a 2025 outlook roundtable. It changes the Widely held beliefs The US economy and stocks will outperform the rest of the world in 2025.

Of course, the main variable in which direction the markets are headed is Trump himself. While stocks It rose to new highs After his election in November, economists recently said that some of the policies he proposed, such as higher tariffs and mass deportations, It can keep inflation high.

Details of those policies remain anonymous. However, once actually enacted, it will come against the backdrop of a stock market that many have come to admire — which could be ripe for change.

Josh Schaeffer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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