Anatomy of a Looming Bear Market: How to Assess the Impact of Donald Trump's Chaotic Economic Measures on Wall Street

Abstract

Financial markets are highly sensitive to macroeconomic policies, particularly those affecting corporate earnings growth and investor sentiment. The Trump administration's protectionist measures, trade conflicts, and labor market disruptions have led to a sharp deterioration in corporate earnings perspectives, impacting stock valuations. This paper evaluates these effects using the Potential Payback Period (PPP), a valuation metric superior to traditional methods like the Price-to-Earnings (P/E) and PEG ratios. By integrating earnings growth, discount rates, and risk factors, the PPP provides a comprehensive framework for understanding market shifts. Findings indicate that as earnings growth expectations decline, the PPP lengthens, SIRREP drops, and SRP turns negative, signaling a shift from undervaluation to overvaluation. This transition suggests an impending bear market and underscores the PPP’s predictive value in assessing market cycles.