The US Stock Market under the Trump and Biden Administrations: Performance Differences and Long-Term Investment Logic

US Stock Market Under Trump and Biden Presidencies: Performance Differences and Long-Term Investment Logic

Introduction: During different presidential terms, the performance of the U.S. stock market often becomes an important observation window for market participants to assess policy impacts. During Trump's first term and Biden's term, the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite all hit record highs, but there were obvious differences in gains and structure. Trump's first term benefited from tax reform, deregulation, and rapid post-pandemic recovery, while Biden's term achieved relatively moderate cumulative gains amid high inflation, rising interest rates, and geopolitical shocks. Now, in Trump's second term, tariff policies and the Middle East conflict have introduced new sources of volatility. This article attempts to compare the market characteristics of the two periods from the perspective of capital flow logic and discuss their implications for long-term asset allocation.

Market Background

Trump's first term (January 2017 to January 2021) was in the late stage of the U.S. economic expansion cycle, with low unemployment and relatively mild inflation and interest rate conditions. The policy tone of this period was dominated by tax cuts and deregulation, corporate earnings expectations were significantly revised upward, and market confidence was strong. Although the COVID-19 pandemic caused an abrupt economic halt in 2020, the Federal Reserve's easing measures quickly calmed the market, and major indices recovered and set new highs before the end of the term.

Biden's term (January 2021 to January 2025) began with the economy in the post-pandemic reopening phase, with fiscal stimulus and monetary easing driving consumer and investment demand. However, the ensuing problems of excess demand and supply chain tensions led to persistently rising inflation. To combat inflation, the Federal Reserve had to take aggressive rate hikes, and higher interest rates put pressure on stock valuations. At the same time, overseas geopolitical conflicts and uncertainty in energy supply further amplified macroeconomic volatility, making the market environment more complex.

Entering Trump's second term (January 2025 to present), policy uncertainty and geopolitical risks have again become focal points. The government has implemented broad tariff policies with a zigzag policy path. After announcements of blanket tariffs on imported goods, major stock indices immediately fell sharply, weakening the market's consensus expectations about economic policy. In early 2026, the conflict between the United States and Iran escalated, and international oil prices rose significantly, further disturbing inflation expectations. As of late June 2026, most economists expected the Federal Reserve to keep interest rates unchanged until the end of the year, indicating that the market is waiting for clearer policy signals.

Current Capital Flows

Comparing the major index performance during Trump's first term and Biden's term, the phase differences in capital flows are very obvious.During Trump's first term, the S&P 500 rose from approximately 2,271 points to 3,798 points, a cumulative gain of about 67%. The Dow Jones Industrial Average rose from about 19,827 points to 31,188 points, an increase of about 57%. The Nasdaq Composite climbed even more, from roughly 5,555 points to 13,197 points, a gain of over 100%, with technology stocks being the absolute core driver. The low-interest-rate environment, combined with corporate tax reform, increased the discounted present value of future cash flows for growth companies, and capital poured in large volumes into cyclical sectors such as technology, finance, and industrials.

During Biden's term, the S&P 500 rose by about 56% cumulatively. Although not as large as in Trump's first term, it still set new highs against the headwinds of inflation and interest-rate hikes. The Dow rose from about 31,188 points to 43,488 points, an increase of roughly 39.5%; the Nasdaq rose from about 13,197 points to 19,630 points, an increase of about 48.7%. The slowdown in gains reflected the suppression of valuations by rising interest rates, while capital gradually shifted from high-risk growth sectors to defensive areas such as health care, utilities, and consumer staples. This rotation trend was especially evident during the most aggressive phase of Fed rate hikes, reflecting institutional investors' emphasis on portfolio stability.

So far in Trump's second term, the S&P 500 has risen about 21.63% since he took office again on January 22, 2025, and the Dow has risen about 17.93%, with the overall market still trending upward. However, volatility has increased significantly, especially the conflict with Iran, which caused sharp periodic declines. The S&P 500 stood at 6,878.88 points the day before the conflict began, fell to 6,343.72 points on March 30, a drop of about 7.8%; but the market subsequently recovered, returning to 7,230.12 points on May 1. In terms of capital flows, the energy sector saw increased buying due to rising oil prices, while industries under greater cost pressure, such as transportation and consumer goods, were reduced. This indicates that current capital flows are more a reaction to geopolitical supply shocks than an allocation based on traditional economic cycles.Second, the interest rate cycle determines the valuation structure. When interest rates are low, the risk-free rate is low, and the overall valuation level of stocks rises systematically. Technology and growth stocks, owing to their duration attributes, are particularly sensitive to interest rate changes. As the Biden term entered a rate-hiking cycle, the risk-free rate rose rapidly, squeezing stock valuations, especially growth stocks with long duration, whose volatility increased significantly. Therefore, we saw that although the Nasdaq still rose, its gains were less than during Trump's first term, and it experienced notable drawdowns during periods sensitive to interest rates.

Third, geopolitical risks have changed the dimensions of risk pricing. The Iran war during Trump's second term highlighted the "supply shock" factor that traditional capital flow models rarely consider. Rising oil prices not only increase corporate costs but also constrain central banks' monetary policy space through inflation transmission. Economists at Goldman Sachs and the IMF have both warned that if Middle East energy flows continue to be disrupted, inflation will rise again and weigh on growth. This risk is increasingly important in long-term asset allocation because it is difficult to fully hedge by diversifying stock holdings; it must be mitigated through alternative assets such as commodities and energy infrastructure, or through regional allocation.

Fourth, structural trends continue amid volatility. Although policy cycles keep shifting, long-term investment themes such as the digital economy, artificial intelligence, and energy transition have not disappeared with the change of president. The technology sector continued to lead index gains during the Biden term, but the magnitude and concentration of those gains changed. This means that when dealing with short-term policy volatility, investors should not ignore long-term trends driven by deep factors such as technological change and demographic structure.

Risk Factors

The risks currently facing the market can be summarized into four aspects.

Macro risk: Uncertainty remains over whether inflation can return to the target range. Although the market generally expects the Fed to hold steady for the remainder of 2026, any re-anchoring of inflation expectations could change the interest rate path, triggering a repricing of asset prices.

Policy risk: The tariff and trade policies of Trump's second term are erratic, making it difficult for companies to make long-term investment plans. Sustained policy unpredictability could weaken U.S. corporate capital expenditure and cause international capital to reduce its allocation weight to U.S. assets.

Geopolitical risk: Iran's potential actions in the Strait of Hormuz remain the "sword of Damocles" over the energy market. Although oil prices have fallen back to near pre-war levels, any new escalation of conflict could push prices up again and cause sharp short-term market volatility.

Valuation risk: After years of gains, major indices are at historically high valuations. This high valuation, combined with expectations of slowing earnings growth, makes the market more sensitive to negative news. Looking at historical cycles, the pressure of valuation normalization tends to be released intensively when policy shifts or recession expectations heat up.From a longer-term perspective, market performance during a presidential term should not be the sole basis for long-term asset allocation. The long-term direction of capital markets still depends primarily on productivity growth, demographic shifts, and the pace of globalization. Over the next 3 to 10 years, the major structural trends worth watching include: the reshaping of corporate operations and business models by artificial intelligence, investment in power infrastructure and new energy driven by the energy transition, and changes in regional capital flows against the backdrop of global supply chain restructuring.

For institutional investors, cross-cycle allocation calls for greater emphasis on portfolio resilience and diversity. The contrast between the Trump and Biden eras shows that no single style or sector can prevail permanently. Therefore, maintaining a balance between growth and value, cyclical and defensive assets, while appropriately allocating to alternative assets such as private equity, infrastructure, and commodities to diversify geopolitical and inflation risks, is a strategic direction worth considering.

Ultimately, investors need to recognize that capital markets always evolve through the interplay of policy cycles, inflation cycles, and technology cycles. Understanding the logic behind capital flows at each stage is more conducive to making rational long-term investment decisions than simply comparing returns within a given presidential term.