We are not big fans of how the stock market does when certain parties control the house or presidency. The main reason being that the data is scewed, as I mention in this article. The main points discussed in their article include:
1 the stock market is not efficient
2 valuations and PE drive market returns, not politicans
3 The stock market is a leading indicator i.e. stocks bottomed in March 09 on news that Citigroup (NYSE:C) and Bank of America Corp (NYSE:BAC) had produced a profit in the first two months of the year. This started the rally, which likely would have continued regardless of who was President.
4 What year you start with makes a huge difference
5 Results are not always adjusted for inflation
That being said, Oppenheimer is out with an extremely interesting report and states that oil stocks outperform under Democrats. Some will claim this makes Democrats look bad, their claim of the GOP being in the pocket of big oil is false, while others will claim its a positive, that Democrats are better for energy production and their invesotrs. The report says that the (evil) oil companies do better under Democrats. Some key notes on the topic (the data only goes back 24 years, which we believe is too short of a time frame, especially considering the market bubbles we experienced over that time period).
In the past 24 years, the White House was occupied 12 years by Democrats and 12 years by Republicans. The compounded average annual change in the iPath S&P GSCI Crude Oil Total Return (NYSE:XOI) was 9% under Democrats and 7% under Republicans, although crude oil prices increased by 7% annually under Democrats and 10% under Republicans. Natural gas prices declined on average by 2% annually under Democrats, but gained 6% annually on average under Republicans. The S&P 500 (Index.INX) gained a 14% annual average under Democrats, vs. no gains under Republicans, while the CPI increased by 2% annually on average under Democrats, vs. 3% under Republicans. In summary, under Democrats, energy stocks and the stock market in general did better and inflation was lower, while oil and gas prices rose more under Republicans.
US Impact
The US is the world’s largest oil consumer and third-largest oil producer. US oil production has increased since 2009 and this growth is expected to accelerate in the next five years, while US oil consumption has declined since 2007 and this trend is expected to continue due to conservation, efficiency improvement, and switching to cleaner and cheaper alternatives. Although US supply and demand fundamentals have little impact on global oil prices, US policies, both domestic and foreign, could have a greater impact.
Oil Majors.
Although bellwether Exxon Mobil Corporation (NYSE:XOM) has gained more under Democratic (10% annualized) than under Republican presidents (7% annualized), it lagged the S&P 500 (INDEX.INX) under Presidents George H.W. Bush, Clinton and Obama. Exxon Mobil Corporation (NYSE:XOM) significantly outperformed the market during the second President Bush’s two terms as the S&P fell. We think major oil stocks, especially Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B), could benefit from easing restrictions on Arctic drilling, more likely under Republicans.
Independent Refiners
Valero Energy Corporation (NYSE:VLO) gained 17% annually and outperformed the S&P 500 (INDEX.INX) under Republicans but gained only 10% under Democrats. Most refining stocks would gain from easing environmental regulations and from the approval of the Keystone XL pipeline, which allows US Gulf Coast refiners access to discounted Canadian crude; both are more likely under Republicans than Democrats.
E&P Independents
Domestic natural gas producers such as Chesapeake Energy Corporation (NYSE:CHK), Devon Energy Corporation (NYSE:DVN), EOG Resources, Inc. (NYSE:EOG), and Southwestern Energy Company (NYSE:SWN) would benefit from increased gas consumption, by replacing coal in electricity generation and by replacing gasoline and diesel in transportation, a policy favored by the current administration. Allowing more LNG exports is more likely under Republicans than Democrats, which could also help lift natural gas.
Winners & Losers.
Coal producers, electric utilities, and pipeline companies should fare better under Republicans because of the usually tougher
environmental regulations and safety standards under Democrats. Innovative companies involved in developing renewable and alternative energy sources, including solar, wind and cellulosic ethanol, are likely big winners under Democrats.
Disclosure: No position in any securities mentioned
