Market Volatility Forecast Under Trump 2.0: Embrace Gains, Prepare for Losses

Editor’s note: “An Outperforming Investment Tool to Help You Game the Market” was previously published in January 2025 with the title, “Introducing: An Outperforming Investment Tool to Help You Game the Market.” It has since been updated to include the most relevant information available.

In the months following Donald Trump’s victory in the U.S. presidential election, the stock market has experienced significant volatility.

The S&P 500 surged 4% in the week after the election, only to decline by 3% the following week. Stocks increased by 4% again as December approached, but then fell 5% by month-end. The index rebounded with a 6% rise in mid-January, only to drop 3% after the inauguration. Now, in February, we’ve seen a 4% gain in the first weeks, followed by a 4% decline.

Wall Street has been on a roller-coaster ride since early November.

Given this volatility, investors are keen to understand what the next four years will entail for stocks during the “Trump 2.0” era. Will unpredictability become the new norm?

This could very well be the case.

To navigate this landscape, I have six words of advice: embrace the boom, beware the bust.

Embrace the Boom; Beware the Bust

Over the past two years, the U.S. stock market has thrived, largely driven by the AI investment trend and a long-awaited pivot in Federal Reserve policy.

The enthusiasm surrounding artificial intelligence has ignited an incredible surge in investments, prompting companies to build the necessary infrastructure to support it. Major players such as Meta (Stock-ticker”>META), Microsoft (Stock-ticker”>MSFT), Amazon (Stock-ticker”>AMZN), and Alphabet (Stock-ticker”>GOOGL) have invested billions in enhancing AI capabilities—creating data centers, developing applications, and expanding their workforce. This investment wave has contributed to a booming economy.

Additionally, after launching the most aggressive series of interest rate hikes in nearly fifty years, the Federal Reserve reduced the rate of increases throughout 2022 and began cutting rates in 2024. This shift has provided significant relief to both consumers and businesses, fostering further economic growth.

The outcome? Stocks have been climbing for two years.

Since its low in October 2022, the S&P 500 has soared over 70%. It recorded two consecutive years of gains exceeding 20%. Specifically, the index rose 24% in 2023 and an additional 23% in 2024. This marks only the fourth instance since the Great Depression of achieving back-to-back 20% increases in the S&P 500.

It’s clear we are in a stock market boom.

In fact, we anticipate this boom will become even more pronounced.

Future Market Bullishness Amid Deregulation and Growth Initiatives

The political landscape following Donald Trump’s victory, alongside Republican control of Congress, suggests an upcoming wave of deregulation, pro-business policies, and potential tax reductions. These factors will likely enhance the current economic expansion.

Evidence of this shift is already visible. Within his first month, President Trump has enacted executive orders to deregulate the energy sector, announced significant initiatives such as Stargate—which will allocate $500 billion towards AI infrastructure over four years—and hinted at further tax cuts.

This seems encouraging, doesn’t it?

It does, but it is crucial to recognize that every market boom eventually gives way to busts. The timing of these downturns is uncertain, but they are inevitable.

As mentioned, the stock market has just achieved consecutive years of gains greater than 20%. Historically, this has only occurred three times before: from 1935 to 1936, 1954 to 1955, and 1995 to 1996.

After experiencing gains in 1935 and ‘36, stocks plummeted approximately 40% in 1937. Similarly, after the booms in 1954 and ‘55, gains flatlined in 1956 before a 15% drop in 1957. After the 1995/96 gains, stocks continued to soar in 1997 through 1999, only to crash nearly 50% from 2000 to 2002. These historical trends demonstrate that booms can quickly transition to busts.

Investing Lessons from Market Booms: Timing is Key

All booms of this nature turn into busts. It is simply a matter of timing.

Does that mean now is the time to exit stocks and flee from the market to avoid a potential downturn?

Absolutely not…

Understanding Market Timing for a Stock Advantage

Typically, the final 30 minutes of a movie are the most thrilling. The concluding episode of a TV series often delivers the best content, just as the last few minutes of a sporting event usually captivate viewers.

In a similar vein, the concluding years of a stock market boom can yield significant profits.

Take the Dot Com Boom of the late 1990s as an example.

During this period, tech stocks experienced remarkable growth. The Nasdaq Composite surged 40% in 1995, followed by increases of approximately 20% in both 1996 and 1997. The rally continued with an impressive 40% gain in 1998, culminating in a nearly 90% rise in 1999, marking its peak year.

However, this ascent led to a downturn starting in 2000.

The takeaway is clear: the peak year for tech stocks during the late ’90s coincided with the end of the Dot Com Boom.

This highlights the importance of not exiting a stock market party too soon. Yet, it’s equally important not to stay too long.

So, what strategies should investors consider?

Capitalizing on the boom is crucial, but vigilance during the bust is equally important. Investors should ride the rising tide of stocks and monitor for warning signs before making their exit.

Of course, executing this strategy is easier said than done.

To assist in navigating this landscape, we developed Auspex: a stock screener that evaluates approximately 14,000 stocks with each run of its model. This tool aims to identify stocks likely to appreciate over the next 30 days, focusing on those with favorable fundamental, technical, and optical attributes. Only a select few make the final list.

Following a thorough assessment by my team, these stocks are designated as our “Auspex picks” for the month. This process is repeated each month.

Indeed, in just a few days, we will conduct our next scan to reveal the top stocks to buy in March.

Click here to access those selections before we publish them on Monday.

_{On the date of publication, Luke Lango did not hold (either directly or indirectly) any positions in the securities mentioned in this article.}

P.S. To keep informed about Luke’s latest market insights, read our Daily Notes! Find the latest edition on your Innovation Investor or Early Stage Investor subscriber site.