Electing Energy (Onto Stage 4)
The Gist (1) Energy equities perform best when Democrats control the White House & Congress but betting markets don’t put that as the likely outcome. (2) What matters more than political affiliation is that commodities thrive under populists’ inflationist agenda and populism will remain alive and well after November. (3) Government spending will continue until either voters demand fiscal discipline or bond markets intervene, both of which seem unlikely in the near term.
In less than 40 days, we will (hopefully) know who the 47th President of the United States is.
But the last ~4 years have held true to a couple of observations dating back many years.
To start, energy equities tend to perform best when the Democrats control both the executive branch and Congress, which was the case during the first two years of the current administration.
Off the COVID lows, when Democrats controlled Washington D.C., inflation and energy prices surged.
However, voters’ concerns over inflation gave Republicans a foothold in the House, and since then, energy stocks have gone sideways, relinquishing what was once their best performance during a presidential election cycle in the last 100 years.
The second takeaway from the above chart is that the majority of presidencies above the average line occur when a Democrat resides in the White House.
What has been different about this presidential cycle is the bifurcation in energy’s performance.
As shown below, energy equities tend to remain flat in the first half of a presidential cycle, then outperform in the latter half.
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