Wall Street’s True Driver: Not Trump, Not Talk — Just Earnings

Follow-up to my article published April 26, 2025 in The Geopolitics: “Wall Street: The Last Force That Can Still Restrain President Donald Trump”

Introduction: Wall Street’s Real Compass

In my April 26 article in The Geopolitics, I explained how Wall Street had emerged as the final institutional force capable of containing President Donald Trump’s disruptive power. While Trump could override political advisers, dismiss legal obstacles, and defy diplomatic norms, he could not ignore the market — especially when that market sends a clear message: he cannot ‘Make America Great Again’ if his policies provoke a prolonged bear market that drains investor confidence and jeopardizes economic momentum.

This follow-up builds on that thesis but adds a crucial analytical dimension. As the originator of the Potential Payback Period (PPP) method, I apply this forward-looking approach to explain recent events and shifts in U.S. market valuation. The PPP, unlike traditional ratios like the Price-to-Earnings (P/E) ratio, considers not just today’s earnings but how fast they’re expected to grow — and how much risk surrounds that future growth. When growth slows, valuations fall. And when policies undermine confidence, markets reprice swiftly.

Market Inflection Points and Policy Signals

Recent market fluctuations are best understood not as irrational noise, but as rational reactions to shifting expectations about corporate earnings growth — specifically, to identifiable inflection points in the trajectory of that growth. From a valuation perspective grounded in forward-looking metrics such as the Potential Payback Period (PPP), the first half of 2025 can be divided into three analytically distinct phases:

Phase 1: Until Mid-March 2025 — Optimism Anchored by Fundamentals

There was no negative inflection in the strong, sustained upward trend of earnings projections, which remained anchored at an estimated average annual growth rate of 18% for companies listed in the S&P 500. With an average P/E ratio of 30 and a 10-year Treasury yield at 4.62%, this growth outlook still suggested that the market was reasonably valued relative to its fundamentals. Under these conditions, the market continued to appear undervalued, as demonstrated in our study “The S&P 500 is Not Overvalued” (January 31, 2025). This justified the continuation of Wall Street’s bullish momentum.

Phase 2: Mid-March 2025 — A Sudden Bearish Turn

A clear negative inflection occurred as expected earnings growth was tentatively revised downward — essentially halved — from 18% to 9% per annum. This adjustment was prompted by the announcement of corporate-unfriendly policy measures that shook investor confidence. The shift rendered the market overvalued by PPP standards, triggering a strong bearish signal. The anticipated correction came swiftly, with a sharp selloff in early April, in line with our warning in “Anatomy of a Looming Bear Market: How to Assess the Impact of Donald Trump’s Chaotic Economic Measures on Wall Street” (March 13, 2025).

Phase 3: From Mid-April 2025 — Fragile Recovery

A modest positive inflection emerged as the forecasted earnings growth rate edged up from 9% to approximately 12%, reflecting or anticipating Trump’s partial policy reversal — including a softer tone on trade, temporary tariff rollbacks, and renewed outreach to business leaders. This recalibration brought valuations very close to the threshold of undervaluation, encouraging a partial recovery of earlier market losses. However, investor sentiment remained cautious, with valuations still highly sensitive to future policy signals from the Administration.

Interpreting the Rollercoaster: PPP in Action

These inflection points are not just economic footnotes — they materially altered the market’s valuation landscape. Using the PPP as a lens, we can trace how quickly Wall Street moved from undervaluation to overvaluation, then back toward a fragile equilibrium:

• January 2025: With earnings growth forecasts at 18%, PPP models showed that the market still had room to rise. Investor returns, driven by strong underlying fundamentals, appeared both attractive and sustainable.

• March 2025: The downward revision to a 9% growth forecast changed everything. Stocks that previously offered solid long-term value suddenly looked expensive. The payback period — how long it would take for future earnings to justify current prices — lengthened significantly. This led to a surge in caution, followed by April’s sharp market correction.

• April 2025: With Trump signaling a softer stance — such as hints of reducing certain tariffs, resuming dialogue with trading partners, pausing regulatory threats, and suggesting potential concessions on trade policy — growth forecasts nudged back up to 12%. This was not a return to January’s optimism, but it was enough to shorten the PPP just enough to restore partial investor confidence. The market rebounded — but the outlook remained precarious.

Embracing Analytical Discipline Amid Uncertainty

This valuation rollercoaster reflects more than shifting numbers; it highlights the market’s heightened sensitivity to political signals and growth assumptions. While earnings projections remain volatile, tools like the PPP allow investors to stay grounded — distinguishing short-term noise from long-term value.

While the projected figures used throughout this article — especially for earnings growth rates and their inflection points — are necessarily tentative and approximate, they serve to highlight meaningful directional trends and shifts to which the market has proven highly sensitive. The PPP methodology acknowledges this inherent uncertainty and addresses it by enabling sensitivity analyses that account for a wide range of scenarios. These allow investors and policymakers alike to better understand how even small changes in expected growth can dramatically affect valuation.

All of my technical updates, real-time PPP-based analyses, and commentary are published regularly on my LinkedIn page.

Conclusion: Clarity Through the PPP Lens

The market’s sharp swings in early 2025 were not expressions of emotion or ideology — they were reactions to tangible shifts in expected earnings. By applying the Potential Payback Period (PPP) framework, we gain a clear, structured way to interpret such volatility and differentiate true value signals from policy noise. In a politicized economy, analytical discipline is more essential than ever. The PPP provides that discipline — and a compass for navigating what lies ahead.

[Photo by Arnoldius, CC BY-SA 3.0, via Wikimedia Commons]

The views and opinions expressed in this article are those of the author.