What Wall Street Doesn't Know About a Trump Presidency

Editor's note: After more than a year of positive earnings growth, companies in the S&P 500 Index are starting to reverse course.

Today, our founder Porter Stansberry discusses where this swing in expectations is coming from. In this issue, adapted from his newsletter The Big Secret on Wall Street at Porter & Co., he explains why money has started flowing out of the market at a historic rate.

Every broker in the financial-industrial complex will be announcing their forecasts of which sectors of the market will win and which will lose under the incoming Trump administration.

Ignore them... they aren't worth the paper they're written on (along with most everything else they tell you!).

The reality is that the conventional wisdom about this – as with much else in life – is mostly wrong.

And despite the wave of enthusiasm sweeping through the markets following Trump's electoral victory, there's reason for caution.

You see, while most everyday investors are jumping headfirst into overpriced stocks, the "smart money" is waving a warning flag...

Since the S&P 500's low near 3,500 in October 2022, the index has gained more than 68% to around 5,900 today. Over that same period, the trailing-12-month earnings per share for the index have increased by just 7% from $222 to $238.

That means most of the price gains over the last two years have come from investors paying more for each dollar of earnings... not from earnings growth.

Since October 2022, the S&P 500's price-to-earnings (P/E) ratio has inflated from 17 times to a near-record high of 26 times today.

For perspective, the S&P 500's valuation peaked at a P/E ratio of 30 times in 2000 during the height of the dot-com bubble. That means we are only 15% away from the valuation peak that preceded one of the sharpest declines in stock market history.

Meanwhile, retail investors have already gone "all in" – and therefore have little room to pour more money into the market.

While retail investors are rushing into the stock market at near-all-time-high valuations, the "smart money" – institutional investors – is running in the opposite direction...

According to Bank of America's ("BofA's") regular report on institutional investing, the U.S. stock market saw $6 billion in outflows during the week ending October 25. That's the largest weekly selling spree in eight years – and one of the largest since 2008. Take a look...

The sell-off includes legendary investor and Berkshire Hathaway (BRK-B) founder Warren Buffett... who is cashing out in a big way.

Berkshire Hathaway revealed in its third-quarter financial report on November 2 that Buffett continued a stock-selling spree that has now gone on for eight consecutive quarters. The company also reported no repurchases of its own shares for the first time since 2018.

In total, Berkshire liquidated $34.6 billion from its stock portfolio last quarter. This brought the conglomerate's cash holdings to a record high of $325 billion – up 94% year to date...

So who's on the right side of this trade – the mom-and-pop crowd going all in, or Buffett and other institutional investors cashing out?

Our money is on Buffett. And we remind readers of his sage advice: "Be fearful when others are greedy, and be greedy when others are fearful."

Right now, most investors are greedy. Regardless of what changes an incoming Trump administration might bring, we believe it's only a matter of time before greed shifts to fear, and prices fall by 50% or more.

Those who raise cash now, like Buffett, will be in a position to buy world-class businesses at bargain-basement prices...

In the meantime, even in today's generally overvalued stock market, bargains can still be found.

Regards,

Porter Stansberry

Editor's note: Porter recently sat down with our own Dr. David "Doc" Eifrig to unveil the biggest and most important prediction of his 25-year career. According to Porter, a conflict is brewing in America that could upend the U.S. financial system... potentially in a matter of months. But thanks to "the greatest financial secret of all time," Porter says investors can emerge from it better than before... Learn more here.