To Inform:

Earlier this week our Chief Investment Officer, Alex Durbin, led an informative Portfolios at Your Place Zoom event which took a deep dive into markets and election history. Alex kept the conversation lively by including audience poll questions like this one:

Which sector of the market performed best during the Biden Administration?

1. Technology
2. Energy
3. Financials
4. Consumer Discretionary

What do you think the answer is…?

The correct answer, B, Energy, was more than double the performance of the second best performing sector, Technology (from the period 11/4/20 – 3/31/24) and may be a surprise to an investor looking through the lens of politics. After all, aren’t Democrats supposed to be “bad” for big oil companies?

We dug into sector performance history under other Presidential administrations and the results were not necessarily what politics would suggest. Here are some examples we found interesting (data from BlackRock Student of the Market):

• Technology was the best performing sector under both the Clinton and the Trump administration
• Even though Energy was the best performing sector under the Biden administration it was the worst performing under the Obama administration…but it was also the best performing under George W. Bush’s administration and the worst under the Trump administration. Drawing conclusions about which party’s politics will favor the Energy sector seems tough here.
• Industrials were never the best or worst during any administration but were consistently in the middle.
• Consumer Discretionary stocks performed best under the Obama administration.

For those of you interested, here is a table which looks at all of sectors under different Presidential administrations:

Source; Morningstar

Our conclusion from this pretty colored chart: thinking you can select an outperforming sector based on a party’s or President’s policies is a futile exercise.

So, if that’s the case, is there anything an investor can do to tilt the odds in their favor when investing in an election year? The chart below shows sector performance in election years going back to 1976. It shows sector outperformance varies by party, but there is a clear “skewness” to the chart.

• Energy and Communications stocks showed a positive skew (more results on the right side of the chart) and tended to outperform more often than underperform in election years.
• Health care showed a clear negative skew (more results on the left side of the chart) and tended to underperform more often than outperform during election years. Materials and Technology also show a negative skew.

Source: Capital Group

There may be a bit of intuitive logic we can apply here. Our CIO, Alex Durbin, called Health Care “the bi-partisan whipping boy of sectors” meaning both parties like to talk about rising health care costs. Energy also seems to be a sector which comes under fire in election years, but perhaps Energy leadership is an example of where it pays to be contrarian.

Two familiar phrases/quotes we think apply here are “past performance is no guarantee of future results” and “history doesn’t repeat itself, but it often rhymes.” If investors keep both of these sayings in mind, there may be an opportunity to at least tip the odds in their favor when looking at different sectors of the economy during an emotionally charged election year.

Written by Travis Upton, Partner and Chief Executive Officer