Presidential politics and the Midas touch

Presidential elections are full of soundbites about how the different candidates are best for the economy. So it's not a surprise that a lot of investors think the choice for president is a major driver behind certain stocks' performance.

It's an investment theory that treats the president much like King Midas, with his famous golden touch. Even basic Google searches show this. If you try to search "stocks to buy if…" the top answers are election-based, even more than anything about the actual economy.

Stereotypical examples would say a Republican president would be good for energy companies like ExxonMobil or defense suppliers like United Technologies. A Democrat winning might be good for media and tech companies like Apple and Disney, given how friendly Hollywood is with the party. But a lot of data suggest things might not be so simple. Party affiliation of American presidents may not really impact the stock trajectories of the country's largest companies.

Data analytics tool Kensho provides a look at the stocks that win and lose based on presidential politics.

Going back to the 1980 election, Kensho shows there is only one stock with a statistically significant positive return a year later when a Republican wins: Travelers Insurance, with an average return of 40 percent.

And when a Democrat wins, there is only one stock with a statistically significant positive return a year later: Again, Travelers Insurance. It had an average return of 36 percent.

‹

• Stocks and gridlock: Debunking the myths
• The importance of the oil and stocks correlation
• Happy 80th to Icahn, who makes 1/2 a million A DAY

›

For every other company in the Dow 30, none has had a return statistically different from random noise, luck or chance.

So what's going on here?

Maybe Travelers just has a great year every fourth year. The honest assessment is it's impossible to tell. It's just one of those quirks in the numbers that shows how weird the data can get. Giant companies don't really move all that much because of an election. They move because of what's happening in the market.

For a real counterexample, look at healthcare stocks.

They might have seemed like an obvious loser from the government overhaul of insurance. But after the Affordable Care Act, they turned out to be big winners in the final product of the bill. UnitedHealth stock is up 264 percent from the day President Barack Obama signed the ACA into law, through Jan. 31, 2016. That makes it the second-best performer in the Dow 30.

Trying to predict a good stock to pick based on the election? You'd be better off waiting a few months to see what's actually coming out of the Oval Office, rather than running to your broker on election night.