S&P 500 up 30.6% in Trump's second term's first 20 months

The S&P 500 has gained 30.6% since President Donald Trump took office for his second term, a performance that exceeds the 28.5% rise recorded over the same 20-month period of his first term. As of September 30, the index is pacing ahead of its historical trajectory from the previous administration, positioning 2026 for a positive annual performance barring a significant fourth-quarter decline.

During the first term, 2018 remains the worst year for stocks, with the S&P 500 losing 5.2% largely due to a trade war with China. In contrast, the current market environment is navigating different geopolitical pressures, including an ongoing war in Ukraine that has outlasted U.S. involvement in World War II and a conflict in Iran that has elevated oil prices and inflation. Despite these headwinds, the index has demonstrated resilience.

Historical data suggests that midterm election years are typically the weakest for stocks, with an average S&P 500 gain of just 4.9%, which is less than half the market's historical average. However, the current year is bucking that trend. The third year of a presidential cycle is historically the strongest for the market, implying that 2027 could deliver solid returns. Political analysts indicate that Democrats are likely to gain control of the House in the upcoming election and have a credible chance at a Senate majority.

A divided government is often viewed as beneficial for equities because it limits the ability of either party to enact sweeping legislation that could disrupt financial markets. This dynamic was evident in 2019, when the Vanguard S&P 500 ETF rose 28.9% under a Democratic congressional majority. Investors can access index exposure through exchange-traded funds like the Vanguard S&P 500 ETF (VOO), which tracks the index with a low expense ratio of 0.03%, equating to $3 annually for every $10,000 invested.

Comparing the two terms involves caveats, as the macroeconomic and geopolitical conditions of 2018 were less volatile than today's environment. Nevertheless, the sustained strength of the S&P 500 ahead of Election Day and the start of 2027 offers an encouraging signal for investors monitoring the presidential cycle.