Trump Bump: How Much Higher Can Stocks Go?

 Behind the “Trump Bump”: How Much Could Stocks Rise in 2025?

For the past two days, the stock market has benefitted nicely from the so-called "Trump Bump." 

That is, ever since Donald Trump won the 47th U.S. Presidential Election – on the premise that his pro-growth policies will benefit the U.S. economy and stock market – stocks have been taking off. 

But how big is the "Trump Bump" really? Is it enough to push stocks 2%… 5%… 10% higher? 

Well, we've looked back on the market's performance during Trump's first term in office. And in our analysis, he observed two forms of the Trump Bump. 

1. A boost for corporate earnings through more pro-growth policies and tax cuts.
2. A rise in valuations thanks to increased investor confidence in the economy. 

Clearly, those two factors are net-positive for stocks. And we see a pathway for this election-driven rally to push stocks almost 30% higher in 2025. 

Here's our math.

Higher Earnings Mean Stocks Should Keep Rising

The first form of the "Trump Bump" – higher earnings – is about a 2% to 4% boost in earnings, before considering tax cuts. That is, from November 2016 (when Trump won his first term as president) to December 2017 (the end of his first year in office), we saw 2017 and '18 earnings estimates rise about 2% and 4%, respectively. 

So, it seems Trump's pro-growth policies were good enough for a considerable rise in earnings estimates during his last term in office. We think that's achievable this time around, too. 

Meanwhile, there is talk that Trump will also reduce the corporate tax rate from 21% to 15%. Goldman Sachs estimates that if he is successful at doing so, it could result in a 4% boost to earnings per share (EPS) for the S&P 500. 

In other words, the boost to earnings over the next few years will likely be a 2% to 4% bump-up from pro-growth policies and a 4% bump-up from corporate tax cuts. Altogether, that's a 6% to 8% increase in earnings estimates. 

At the midpoint, that would take the current 2026 EPS estimate for the S&P 500 of ~$303 and make it $325 by the end of next year. 

A Second Term for Trump Will Likely Boost Valuations

Now, the second bump factor – increased valuations – would be about a 10% rise in valuation multiples. 

Throughout 2016 – before Trump took office for his first term – the S&P 500 was consistently trading between 16X and 18X forward earnings. That expanded during Trump's first year in office, when the S&P consistently traded between 18X and 19X forward earnings. 

In other words, likely due to increased confidence about the economy, investors pushed up valuations by ~10% the last time Trump was elected. 

We think that's doable this time around, too. Throughout 2024, the S&P 500 has mostly bounced between trading at 20.5X and 22.5X forward earnings. And a 10% boost to that implies a ~23.5X forward earnings multiple for stocks. 

If we combine those two "Trump Bump" factors – a ~7% boost to earnings and a ~10% rise in valuations – then we're looking at 2026 estimated EPS for the S&P 500 of $325 and a 23.5X forward earnings multiple. That combination implies a 2025 target for the S&P of 7,640 – nearly 30% above where it is currently trading. 

In other words, if Trump's second term as president plays out like his first (in terms of stock market earnings and valuation impact), stocks could soar ~30% over the next 12 months.

As such, we think the investment game plan for Trump 2.0 over the next 12 to 24 months is simple: Get fully bullish right now and stay that way for as long as the market keeps trending higher. 

L. Lango