Today, Jan. 20, marks Inauguration Day for Donald Trump. When he officially takes the oath office, it will mark only the second time in our nation's history that a president has served two nonconsecutive terms. More importantly, it'll mark a new era for Wall Street.
During Trump's first stint in the White House, the stock market soared. The ageless Dow Jones Industrial Average(DJINDICES: ^DJI), benchmark S&P 500(SNPINDEX: ^GSPC), and innovation-inspired Nasdaq Composite(NASDAQINDEX: ^IXIC) respectively increased in value by 57%, 70%, and 142% with Trump in office. It's worth noting that the stock market moved noticeably higher following Trump's Election Day victory in November.
President Trump delivering remarks. Image source: Official White House Photo by Joyce N. Boghosian, courtesy of the National Archives.
But investing is all about looking to the future and not reminiscing too much on the past.
When Trump takes office, businesses will be ramping up their investments in key areas. While it might seem logical to expect spending on artificial intelligence (AI) solutions to rocket higher during Trump's second term, there's another investment likely to dwarf AI in aggregate corporate spending.
Trump will reshape the future of AI in America
Make no mistake about it, Donald Trump is going to play a key role in what's been the hottest trend on Wall Street. Based on estimates from PwC in Sizing the Prize, artificial intelligence can add $15.7 trillion to the global economy by 2030, which would represent a 26% increase in worldwide gross domestic product.
The biggest imprint Trump will have within the AI arena, at least to start with, is revoking outgoing President Joe Biden's AI executive order (EO). Aside from eliminating certain oversight committees, revoking Biden's AI EO will allow the new administration to lay a completely new foundation for a rapidly growing but still early stage technology.
In particular, Trump plans to focus on promoting domestic AI innovation, especially when it comes to maintaining national security. Whereas the Biden AI EO had fostered cross-border cooperation, Trump's first term in office, coupled with his campaign message, suggests an America-first/protectionist approach.
There's a good chance we'll also witness less in the way of AI regulation from the Trump administration. While this doesn't mean the industry won't have safety-testing standards, it should open the door to additional product development and encourage more merger and acquisition activity.
With AI evolving beyond hardware and into real-world solutions that can power virtual agents, self-driving vehicles, and protect sensitive data in the cloud, businesses have every reason to ramp-up their capital spending on AI innovation under President Trump.
Image source: Getty Images.
Trump's presidency will light a fire under this greater-than $4 trillion investment
Although artificial intelligence may remain the hottest thing since sliced bread on Wall Street, the biggest upside driver for stocks over Donald Trump's next four years in the White House may very well be share repurchase activity.
In December 2017, less than a year after Trump began his first term, the president signed his flagship Tax Cuts and Jobs Act (TCJA) into law. While the TCJA provides for reduced personal income tax levels, which are on track to sunset at the end of this year, it permanently lowered the corporate income tax rate from 35% to 21%, beginning in 2018. This is the lowest peak marginal tax rate for corporations since 1939.
Though this is purely correlative, we witnessed a decisive uptick in share buyback activity from S&P 500 companies once the TCJA went into effect.
In the seven years prior to the TCJA, the 500 companies that make up the S&P 500 repurchased an average of $100 billion to $150 billion of their common stock per quarter:
2011: $467 billion in total buybacks from S&P 500 companies
2012: $413 billion
2013: $496 billion
2014: $565 billion
2015: $592 billion
2016: $553 billion
2017: $540 billion
Now take a closer look at what happened following the passage of the TCJA. Keep in mind the slump witnessed in 2020 has to do with the historic uncertainties tied to COVID-19 pandemic lockdowns:
2018: $840 billion in total buybacks from S&P 500 companies
2019: $749 billion
2020: $538 billion
2021: $919 billion
2022: $950 billion
2023: $815 billion
2024: $924 billion (estimate per Goldman Sachs)
2025: $1,075 billion (estimate per Goldman Sachs)
From a pre-TCJA to post-TCJA basis, S&P 500 buyback activity jumped from $100 billion to $150 billion per quarter to a new normal of $200 billion to $250 billion per quarter.
Trump's November victory ensured that attempts to increase the peak corporate income tax rate were off the table for at least four more years. More importantly, it opened the door to the possibility of additional cuts.
While on the campaign trail, Donald Trump proposed a further reduction of the corporate income tax rate from 21% to 15% for businesses that produce their products in America. While a lower tax rate would almost certainly weigh on the federal deficit, it would pave the way for additional stock buybacks.
On a cumulative basis, S&P 500 buyback activity should surpass $4 trillion during Trump's second term.
Wall Street's most-influential businesses have benefited immensely from buybacks
Though there's no question that artificial intelligence and cloud-computing have played a big role in fueling the rally for some of Wall Street's most-influential companies, the value of buybacks can't be overlooked.
Over the trailing-10-year period, ended Sept. 30, S&P 500 companies had collectively purchased more than $7 trillion worth of their own stock, according to S&P Dow Jones Indices, a division of S&P Global. Just seven S&P 500 components account for nearly a quarter of this repurchase activity.
Apple: $695.3 billion in trailing-10-year buybacks (as of Sept. 30)
Alphabet: $286.7 billion
Microsoft: $196.2 billion
Meta Platforms: $186.2 billion
Wells Fargo: $128.4 billion
JPMorgan Chase: $128 billion
Bank of America: $119.9 billion
For companies with steady or growing net income, reducing their outstanding share count over time can increase earnings per share (EPS). An increase in EPS can make a company more fundamentally attractive to value-focused investors.
For example, Apple's outstanding share count has been reduced by nearly 43% since kicking off its buyback program in 2013. With the exception of Meta, whose share count has fallen by 13%, all six companies listed above have lowered their peak outstanding share count by 29% to 43%. This is having a decisively positive impact on their respective EPS, as well as their share price.
Donald Trump's second term should spur record-breaking share repurchase activity.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Wells Fargo is an advertising partner of Motley Fool Money. Sean Williams has positions in Alphabet, Bank of America, Meta Platforms, and Wells Fargo. The Motley Fool has positions in and recommends Alphabet, Apple, Bank of America, Goldman Sachs Group, JPMorgan Chase, Meta Platforms, Microsoft, and S&P Global. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
