The Most Important Indicator of the Stock Market Now Isn’t What You Think
Not too long ago, a well-known analyst suggested that investors shouldn’t bet against the White House or Washington. His argument was simple: even with economic data coming in soft, it’s ultimately the Trump administration that’s picking the winners and losers in the stock market.
That analyst was Tom Lee, Head of Research at Fundstrat Global Advisors. (Source)
There’s certainly merit to Mr. Lee’s point. The Trump administration — and arguably people close to it — have shown a willingness to pick winners and losers, and at times even signal market bottoms.
Remember back in April 2025 when President Trump said it was a great time to buy?
Remember the pumps in crypto markets?
Anyway, that’s not the point here…
What Matters Most — The Most Important Indicator of the Stock Market Now
If you’re trying to figure out where the stock market is headed — and you believe that betting against the White House is a dumb idea — then there is one thing you must pay attention to: President Trump’s approval ratings.
In my view, this may be the most important indicator of the stock market now.
Look, I’m no pollster or political junkie — but my thesis is simple: if the American public isn’t approving of the President, and with midterms on the horizon, wouldn’t the biggest thing be whether he’s delivering on his promises?
Current Trend — Approval Ratings Falling Hard
As it stands, President Trump’s approval ratings have been coming down hard. Yes, polls aren’t perfect — but over time I’ve learned you have to respect the trend.
Right now, the trend doesn’t look good.
According to the most recent polling data, over 55% of Americans disapprove of President Trump, while only 42% approve. Around the same time last year, 40% disapproved and 51.6% approved. (Source)
If Trump’s approval continues to drop — which is possible given the political, geopolitical, and legal entanglements the administration is dealing with — we have to ask: will the stock market — and more importantly the “winners”— continue to perform?
Historical Context — What Happens When Approval Ratings Drop
This is where history gives us perspective, and it’s important to pay attention to.
Looking at the data going back to the 1960s shows average market performance varies with presidential approval ratings:
- When approval is below ~35%, the average S&P 500 return has historically been negative (~-9.9%).
- When approval is between 35%–50%, markets still delivered above-average returns (~+9.3%).
- When approval was above 50%, returns were more modest (~+6.6%). (Source – PDF)
This means the majority of some of the best returns came when approval was mid-range — not when it was sky high. Investors don’t have to love what’s happening in Washington to make money.
Bringing It Back to Reality — Fundamentals Still Matter
Look, if you’re a long-term investor, you can’t let short-term political noise drive your decisions.
Yes, the stock market has had a solid run to the upside over the past few years. But as I always say, there are thousands of companies trading across North America — and if you look beyond the headlines, there are opportunities regardless of the political backdrop.
Still, we have to be honest: valuations today are high relative to historical averages.
You hear “this time it’s different” all the time. But history teaches us that mean reversion matters, and the higher valuations go, the rougher the reversion tends to be when it arrives.
What You Should Watch Now
If you want to anticipate where stocks go next, keep your eye on approval trends.
It might not be the only metric that matters — earnings, interest rates, inflation, and credit conditions all matter too — but at this stage in the cycle, tracking presidential approval is arguably the most important indicator of the stock market now.
Focus on it. But don’t lose sight of fundamentals.
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