If you had to guess which sector of the US stock market has performed best under the Joe Biden presidency, what would you say? Industrials, perhaps, given infrastructure spending and the administration’s emphasis on domestic manufacturing? Or is it technology, spurred by the Chips Act and enthusiasm about artificial intelligence?
You probably wouldn’t say energy, as in traditional oil and gas stocks. After all, renewables like solar and wind have been promoted under “Bidenomics.” The Strategic Petroleum Reserve was released to bring oil prices down after Russia’s invasion of Ukraine sent them soaring. Yet, for reasons explained by Morningstar vice president of research John Rekenthaler, fossil-fuel-related businesses have thrived under Biden. The Morningstar US Energy Index has been the best performer of the market’s 11 economic segments from the start of 2021 through the third quarter of 2024.
What about former President Donald Trump’s influence on stock market leadership? After his victory in November 2016, investors expected economically sensitive, domestically oriented economic sectors to benefit from regulatory rollbacks, tax cuts, protectionism, and turbocharged growth. Financials, basic materials, energy, and industrials enjoyed the biggest “Trump Bump.” Tech stocks lagged in the immediate aftermath of the election of a candidate perceived to be hostile to Silicon Valley.
Yet, technology ended up the top performing equity sector under the Trump presidency. Again, market forces took charge. Mobile computing, the cloud, and e-commerce captivated investors even before the onset of a pandemic that amplified tech sector leadership.
The lesson is clear. At the end of the day, earnings, cash flows, and valuations drive the performance of financial assets. While policy matters, its investment impact is hard to predict and often overestimated.