Mercifully, political season appears to be all over but the shouting. While I wouldn’t say I enjoy that Christmas commercials have already begun, they are a welcome change.
Now that we have some idea of the political winds for the next few years, I have started to get questions about positioning portfolios to take advantage of the expected winning and losing industries and investments. Trying to align a portfolio with anticipated political policies, though, is not a clear path to riches.
In 2016 when President Trump surprisingly won on election day, his stance of reducing regulations was seen as a boon for the energy and financial industries. Oil companies were going to be able to drill in new areas. The restrictions that had been in place in the banking sector since 2008 were finally going to be lifted. Happy days were here again.
Reality, as it usually is, was much different than expectation. Of the eleven sectors that comprise the S&P 500, the two worst performers from the start of 2017 through June of 2020 were the energy and financial sectors. Energy dropped more than 41% in this time!
I think we can all agree that Presidents Trump and Obama are very different in many ways, including political philosophy. Interestingly, though, the same two sectors were the best performers (information technology and consumer discretionary) and worst performers (energy and financials) during each of their terms in office.
Guesses will be made over the next few weeks about winners and losers for the next several years. They will cite regulation, taxes, stimulus, and foreign trade among other factors. Unless one of these analysts owns a time-traveling Delorean, it’s important to remember that these are just guesses, no matter how much research and data collection someone does.
So, what do I say when asked about aligning portfolios based on expected policies? The same as always: Regardless of your views, it’s best to keep political predictions out of your portfolio.