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For the better part of the last two and a half years, the bulls have been running the show on Wall Street. Prior to the latest stock market correction, the iconic Dow Jones Industrial Average(DJINDICES: ^DJI), benchmark S&P 500(SNPINDEX: ^GSPC), and growth-fueled Nasdaq Composite(NASDAQINDEX: ^IXIC) had recently hit fresh, all-time closing highs.
During President Trump's first term in the White House, the Dow Jones, S&P 500, and Nasdaq Composite respectively soared by 57%, 70%, and 142%. Investors are hoping another round of corporate income tax cuts, coupled with deregulation, will lead to an encore performance for the stock market.
Although the stock market has proven to be a wealth-creating machine for more than a century, an uncanny correlation that's lasted for 112 years suggests Donald Trump may be facing a dubious scenario -- and stocks might pay the price.
President Trump gesturing while giving remarks at the Justice Department. Image source: Official White House Photo.
This correlation is undefeated since 1913
Before diving in, let's state the obvious: The stock market offers no guarantees. If there was a way to know with concrete certainty which direction the Dow, S&P 500, and Nasdaq Composite were headed in the short run, everyone would be taking advantage of this knowledge.
With the above being said, 112 years of flawless correlation does tend to offer some validity to the discussion.
In 1913, Democrat Woodrow Wilson took office as president. Since Wilson was in the White House, 10 Republicans have followed in his footsteps, of which Donald Trump is the latest (2017 to 2021 and 2025 to present). All 10 of these Republican presidents have overseen an economic recession that began under their watch. In comparison, four of the nine Democrats who've held the presidency over the last 112 years didn't oversee a recession that began during their term.
The reason it's worth paying close attention to recessions is because downturns in the U.S. economy are, historically, not great news for corporate earnings. Even though the stock market and economy aren't tethered at the hip, a recession would be expected to eventually weigh on corporate profits and push equities lower.
According to an analysis from Bank of America Global Research, approximately two-thirds of the S&P 500's peak-to-trough drawdowns occur during, not prior to, U.S. recessions.
Recession signals are mounting for the U.S. economy
What makes this 112-year streak so worrisome for Wall Street is the latest forecast from the Federal Reserve Bank of Atlanta's GDPNow model.
The Atlanta Fed's model takes into account a number of economic data releases to forecast quarterly gross domestic product (GDP) growth or contraction. While these guesses haven't been spot-on, they've been consistently in the ballpark since the GDPNow model was introduced in October 2011.
Roughly two months ago, the Atlanta Fed's GDPNow forecast was calling for 3.9% growth for the first quarter of 2025. As of the March 26 update, the model is now calling for U.S. GDP to contract by 1.8%. Excluding the lockdowns associated with the COVID-19 pandemic, this would represent the largest downturn in U.S. GDP since 2009's Q1 (i.e., during the Great Recession).
While there have been a number of concerning economic data points, such as the first notable decline in U.S. M2 money supply since the Great Depression, as well as an all-time high for 60-day auto-loan delinquencies, the stock market's prevailing worry at the moment looks to be uncertainty tied to President Trump's tariffs.
The president has repeatedly referred to April 2 as America's "Liberation Day." This is the date when a long list of reciprocal tariffs is slated to go into effect -- albeit, which products will be subjected to these added duties remain fluid.
Based on an analysis from Liberty Street Economics, which is comprised of economists who conduct research for the Federal Reserve Bank of New York, companies that were exposed to China-based tariffs during Trump's first term performed notably worse on tariff announcement days than public companies that had no exposure.
Image source: Getty Images.
What's particularly damning is that Liberty Street Economics' data found a correlation between these underperforming stocks on tariff announcement days and future operating weakness. On average, these underperformers saw their profits, employment, sales, and labor productivity fall from 2019 to 2021 (i.e., after the U.S.-China trade war had ended).
In other words, all signs are pointing to President Donald Trump extending this dubious 112-year streak and overseeing another recession (Trump oversaw the two-month COVID-19 recession in 2020).
Stock market cycles aren't linear, which is great news for opportunistic investors
Admittedly, no one likes hearing the "r" word (recession) thrown around. Recessions often lead to higher unemployment, weaker wage growth, and poor performance for the stock market. But they also beget opportunity for investors with a long-term mindset.
Stock market corrections, bear markets, and even crashes are a normal and inevitable aspect of the investing cycle. Regardless of what President Trump, Congress, or the Fed do, news-driven events and investors' emotions will occasionally move stocks lower -- sometimes at a breakneck pace.
But if there's a near-guarantee to be found on Wall Street, it's the nonlinearity of investing cycles. In short, moves lower and higher are anything but mirror images of each other.
In June 2023, shortly after the S&P 500 was confirmed to be in a new bull market, the analysts at Bespoke Investment Group published a data set on social media platform X which compared the length of every bull and bear market dating back to September 1929 -- i.e., the start of the Great Depression.
Bespoke's data set displayed glaring differences in the average length of bull and bear markets. For instance, the average S&P 500 bear market lasted 286 calendar days, or about 9.5 months. Furthermore, no bear market endured longer than 630 calendar days, which is around 21 months.
On the other end of the spectrum, the average S&P 500 bull market persisted for 1,011 calendar days, or roughly two years and nine months. What's more, 14 out of 27 bull markets, including the current bull market, if extrapolated to present day, have sustained for more than 630 calendar days.
Even though investors can't pinpoint ahead of time when these downturns will begin, how long they'll last, or where the ultimate bottom will be, the data conclusively shows that wagering on bull markets and long-term stock gains is statistically a smart move.
If President Donald Trump extends the 112-year streak of a Republican president overseeing a recession, use the downturn as an opportunity to buy stocks and/or exchange-traded funds (ETFs) at a discount.
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
