Which Sectors Win Big? Democrats Vs Republicans Performance Analysis
As the U.S. elections approach, with just five days remaining until results are revealed, investors are keenly focused on how different sectors have historically performed under Democratic versus Republican administrations. This analysis delves into the historical price action of U.S. sectors from 1990 to 2024, grouping performance data by presidential term in chronological order since 1990, as shown in the chart above.
Democrats:
The chart above presents the cumulative performance of various U.S. sectors during Democratic administrations from 1990 onward, organized chronologically.
The sector with the highest total return is Information Technology with 5970% return, while the worst performer is materials with a 500% total return.
The table above illustrates the average annualized returns and volatility metrics for various sectors. On a risk-adjusted basis, Information Technology stands out as the highest-performing sector, achieving a Sharpe ratio of 0.97, calculated using a 2.2% risk-free rate. This ratio implies that for each unit of volatility, investors receive an excess return of 0.97%, underscoring its favorable risk-return profile. Conversely, the Materials sector shows the lowest risk-adjusted performance, with a Sharpe ratio of 0.47, suggesting relatively lower returns per unit of risk compared to other sectors.
Republicans:
The chart above shows the cumulative performance of different U.S Sectors during Republican terms since 1990 in chronological order.
The sector with the highest total return is consumer staples with a total return of 199%, followed by materials with a 151% return, while the sector with the worst performance is Financials with a -25% total return.
The table above reveals that, despite some sectors exhibiting negative cumulative total returns, the arithmetic average annualized return remains positive across all sectors. Consumer Staples and Materials emerge as the top performers on a risk-adjusted basis, with Sharpe ratios of 0.41 and 0.29, respectively. In contrast, Financials and Telecom sectors have the lowest risk-adjusted returns, with Sharpe ratios of 0 and 0.01, indicating limited excess returns relative to their volatility.
As seen in the chart above, under democrat administrations, all sectors have historically performed better on a risk-adjusted basis.
Conclusion:
In conclusion, this analysis indicates that all sectors have historically outperformed during Democratic administrations, however, the results appear skewed by the exceptional downturn of 2008, which marked the worst year since 1990 for 8 out of the 11 sectors. Only three sectors—Consumer Discretionary and Communication Services (worst years in 2022 under a Democratic administration) and Utilities (worst year in 2001 under a Republican administration following a 57% surge the prior year)—escaped their lowest performance in 2008. Excluding 2008, Republican administrations preside over the lowest-performing years for only 5 of the 11 sectors, the best year for Consumer Staples in 1991, and demonstrate an average outperformance in Materials.
Democratic administrations, meanwhile, account for the peak performance years in 10 out of 11 sectors, though the timing varies widely: Financials and Health Care (1995), Technology (1999), Utilities (2000), Materials (2009), Industrials and Consumer Discretionary (2013), Real Estate (2021), Energy (2022), and Communication Services (2023).
It is essential to note that attributing these outcomes to party-specific policies is challenging. Just as a Republican administration cannot be solely accountable for the 2008 financial crisis, Democratic administrations are not directly responsible for tech-driven gains during the dot-com bubble. Identifying clear, repeatable sector performance patterns linked to the party in power remains elusive, even when policies ostensibly align with specific industries.
Fundamentally, sectors such as Materials and Energy may have greater potential to outperform under Republican administrations, where policies often support resource industries, and inflationary pressures typically lead to higher interest rates. Conversely, sectors like Technology tend to benefit under Democratic administrations, as they align with lower inflation expectations, lower interest rates, as this sector has high duration sensitivity due to its cashflows being priced far in the future.
In summary, while sector performance may correlate with party influence, a disciplined focus on economic fundamentals and policy details is paramount for reliable portfolio construction.