Will a Stock Market Correction Happen Under Trump?

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.

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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.

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.”

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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.”