The battle between the two was not close.
The two major parties have roughly equal positions in the U.S. Congress. Republicans hold a narrow 218-213 edge over Democrats in the House, with four seats vacant due to recent resignations. In the Senate, Republicans hold 49 seats and Democrats hold 48. However, three independents caucus with the Democratic Party, giving the party a narrow majority.
But there is one area where the two major parties are not at all close. In terms of average stock market returns in 2023, Democrats overwhelmingly defeated Republicans.
biased returns
Last year was a good year for most investors. The new bull market, which officially began in October 2022, has gained momentum.of S&P500 It jumped more than 24%.
Democrats easily surpassed that level. Their average return was almost 31.2%. Congressman Brian Higgins (New York), who resigned from Congress in February 2024, was the biggest winner among Congressional stock traders in 2023 with an astounding 238.9% gain.
But Republican representatives and senators fared less well. The average return for Republicans in 2023 was just under 18%. In a great year for stocks, the Republican delegation on Capitol Hill significantly underperformed the S&P 500.
To be sure, some Republicans in Congress were big winners. For example, Tennessee Congressman Mark Greene saw his stock price soar more than 122%. Representatives Garrett Graves of Louisiana and David Rouzer of North Carolina more than doubled their portfolios in 2023. However, they were outliers.
The Democratic Party’s not-so-subtle secret of success
Why did Democrats get more votes than Republicans last year? A look at the kinds of stocks both parties invested in reveals the secret to Democrats’ not-so-subtle success.
Republicans invested more in financial services stocks, oil stocks, and commodities than Democrats. The banking crisis hit bank stocks in 2023. The drop in oil prices prevented most oil stocks from outperforming the market.
Meanwhile, Democrats as a group increased their investment in tech stocks. The stock market’s impressive rise in 2023 will be largely due to the impressive performance of the Magnificent Seven, a group of tech-heavy stocks.
All of the gains made by Higgins, the most accomplished Democrat, were due to his investments. Nvidia (NVDA -10.01%). The chipmaker was also popular with other Democrats.
Nvidia has benefited tremendously from the excitement around generative AI. The company couldn’t keep up with demand for chips. Despite increasing competition, Nvidia’s graphics processing units (GPUs) remain the gold standard for powering generative AI applications.
Amazon and tesla It was also one of the Democratic Party’s favorite stocks. Both companies also benefited from the AI ​​boom. Amazon’s stock price soared 81% last year, while Tesla’s stock more than doubled.
Should you invest like Congressional Democrats now?
Just as the political fortunes of Democrats and Republicans can change over time, so can their investment returns. There’s no guarantee that the kinds of stocks that Democrats favored last year will outperform those bought more by Republicans in the future.
Valuations can be an important factor in pendulum swings. For example, Nvidia (the top stock backed by Democrats in 2023) currently trades at more than 36 times forward earnings. On the other hand, the future profit multiple is conocophilips (an oil stock popular with Republicans) is only 13.8. Investment sentiment may shift from stocks with premium valuations to stocks with more attractive valuations.
Similarly, geopolitical events can shake things up. If the turmoil in the Middle East intensifies, oil inventories will likely move in tandem, causing crude oil prices to soar.
Still, I think tech stocks, including Nvidia, should deliver exceptional returns over the long term, thanks in large part to increased AI adoption. Regardless of which political party you like best, investing in technology can pay handsome dividends over the next decade and beyond.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Keith Speights has a position at Amazon. The Motley Fool has positions in and recommends Amazon, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
