The Political Portfolio

February 01, 2023

Politics influence the stock market. Obviously. How couldn’t they? Some administrations are more favorable to certain industries. Some are antagonistic to others. Some promote free trade, others prefer tariffs and other restrictions. It makes intuitive sense to factor in political headlines/elections when making decisions regarding your investment portfolio.

It also makes intuitive sense to slam on the brakes when your vehicle is sliding on ice.

Unfortunately, that’s about the worst thing you can do. As is letting politics into your portfolio.

So much for intuitive sense. A quick story…

Donald Trump was elected on November 8, 2016. Regardless of what you think about that, there was consensus this would be good for the domestic energy industry. Trump vowed to be pro-energy. He talked about ripping up the Paris Climate Accords, opening up more federal lands to drilling/fracking, approving the Keystone XL pipeline, and reducing restrictions on oil exploration. Drill Baby, Drill. 

A lot of sensible people looked at this and thought, forget my political opinions, let’s make some money and invest in energy! Perhaps they bought Exxon stock, or hydraulic fracturing company stocks. Maybe they went the diversified route and bought energy sector ETFs or mutual funds. I don’t know. But I’m sure plenty of people did that.

And that seems very smart! If you met with your investment advisor at the end of 2016 or in 2017 you were probably thinking about politics and how that impacts your nest egg and retirement. If your investment advisor talked about how he’s going to tilt to energy in your portfolio because of shredded Paris Climate Accords documents and Drill Baby, Drill… well that sounds very reasonable. You would probably experience relief – at least we’re doing something.

That relief would have been short lived. Here is what the energy sector (blue line) did compared to the S&P 500 index (red line) during Trump’s presidency:[i]

I am using the S&P 500 index as a proxy for the stock market, as is customary. I use the S&P GSCI Energy Index as a proxy for energy. Here is your reminder you cannot invest directly into an index and any returns shown below do not include any fees, trading costs, etc. an investor would incur in his or her own portfolio.


So that trade didn’t work out too well. Then perhaps after the 2020 election you found yourself once again with politics and your portfolio on your mind. A new administration was in town. One much more hostile to energy. Biden’s energy platform was the polar opposite of Trump’s. No more fracking on federal lands. Shut down the Keystone XL pipeline. Re-enter Paris Climate Accords. Windfall taxes on oil company profits. Etc. Shut all those Drill Baby, Drill people up, basically. Not great for domestic energy companies. Maybe your investment advisor echoed your concerns and provided some relief: we’re going to trim the energy exposure in your portfolio.

Here is the same chart from the day after Biden was elected to the midpoint of his term:[ii]


You brought politics into your portfolio and bought energy at relative highs in 2016, then sold at the lows in 2020 and missed the subsequent massive energy rally. Brutal.

Perhaps you look at those two charts and think it looks to me the reason for energy’s underperformance during Trump’s tenure was the global economy grinding to a halt following coronavirus lockdowns and energy’s outperformance during Biden’s tenure must be due to the economy reopening. Then you may come to a conclusion along the lines of my investment advisor wasn’t really wrong; he just didn’t anticipate the whole COVID thing. Understandable!

But you are proving my point. Politics do play a role in the stock market – certain administrations favoring certain industries/companies, etc. – but it is only one variable in a million that affects your portfolio. It is foolish to make changes to your portfolio based on a change in one of a million variables! Even if you could correctly estimate the effect of a given administration’s policies on some sector of the stock market, it is a different undertaking entirely to estimate how those policies affect all the other relevant variables. There are second and third (and fourth and fifth and so on…) order effects of every decision that comes out of Washington. How on earth could anyone calculate the net impact of those policies after all other variables have been accounted for?

The bureaucrats in Washington cause enough headaches already, don’t let them ruin your portfolio too.

Sean Cawley, CFP®


Neither asset allocation nor diversification guarantee against investment loss. All investments and investment strategies involve risk, including loss of principal.

Content here is for illustrative and educational purposes only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.

This commentary reflects the personal opinions, viewpoints, and analyses of Resolute Wealth Management. It does not necessarily represent those of RFG Advisory, clients, or employees. This commentary should be regarded as a description of advisory services provided by Resolute Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.

[i] YCharts, SPX & SGJ Total Return Level, 11/08/2016 – 11/04/2020

[ii] YCharts, SPX & SGJ Total Return Level, 11/04/2020 – 1/20/2023