Best Performing Sectors of Biden’s First Month: Energy and Banks

The fossil fuel-dominated energy sector and the banking sector have the best one-month performance, indicating a rotation of leading stocks as the Biden administration took hold of the White House and Democrats took control of the Senate.

One of the maxims of investing is: don’t mix politics with investing.

That may be borne out by the performance of stocks in the early weeks of the Biden administration and Democrat control of both House and Senate. The Democrats are not typically thought of as especially friendly to big banks, consumer finance companies, financial firms, and fossil fuel energy companies. Yet those are the ones whose stock has done the best over the past month.

The energy sector is up 24.6 percent, making it the best performing.

The banking sector is up 19.4 percent over the past month. Consumer finance is up 18.81 percent. Financials overall are up 14.84 percent.

As Joe Weisenthal of Bloomberg news explained Tuesday, some of this may be due to the fact that energy companies and financial firms benefit from income redistribution.

In general, there’s been a big change of stock market leadership since the election. Banks and energy companies have surged with the prospects of more stimulus. Growth companies have flagged. Interest rates have gathered upside steam, especially since the Georgia runoff cleared the way for more spending and faster growth. In a note, Goldman’s top commodity strategist Jeff Currie maintained his bullish call on the asset class, citing environmental policies and increased demand through income redistribution. (Households with lower incomes tend to spend more, therefore income redistribution is growth positive.)

In short, wealthy people can only buy so much gasoline and open so many bank accounts. Redistributing wealth away from high income Americans toward lower income Americans benefits energy and banks.

It’s also possible that investors do not see the Biden administration’s green energy plans and banking regulations as bad for the bottom lines of the biggest companies in these sectors. Regulations create barriers to entry, reducing competition and typically rewarding the biggest players in a sector. Subsidies tend to be dominated by the big companies.