Elections, Energy Policy, and Coal
No matter what the handwringing and drumbeating about energy policies before an election, what may happen and what does happen can be two distinctly different things, as we see time and again, notes Elliott Gue of Energy and Income Advisor.
In the run-up to the 2004 election, the financial media churned out countless articles about how defense stocks and large-capitalization pharmaceutical names would outperform if President George W. Bush were reelected. The same misguided pundits also prognosticated that renewable-energy stocks would thrive if John Kerry won the election.
Investors who followed this simplistic strategy fared poorly. In the 24 months after November 1, 2004, shares of the five-largest defense companies in the S&P 500 returned 13.2%, marginally beating the 9.4% gain posted by the overall index. But if you exclude Boeing’s (BA) 31.7% return, this basket of sure-fire winners underperformed.
A bet on large-cap pharmaceutical companies likewise failed to live up to expectations. The NYSE ARCA Pharmaceutical Index generated a total return of 4.5% in the year after George W. Bush was reelected.
Meanwhile, the Credit Suisse Global Alternative Energy Index surged more than 51% in the 12 months following George W. Bush’s reelection, besting the S&P 500 and the red-hot S&P 500 Energy Index’s 37.9% gain.
Four years later, Barack Obama defeated Republican nominee John McCain by a margin of 365 electoral votes to 173. Leading up to the election, the scribblers argued that alternative-energy stocks would reap the rewards of an Obama presidency because he would push to regulate carbon dioxide emissions and shower the industry with subsidies.