Follow the leader. New research finds these members of Congress are the best stock pickers.

By Steve Goldstein

Study indicates a 47-point outperformance, annually, from top dogs in Congress

It's the leadership who trade profitably, according to a new study.

The tone in the stock market is looking anything but festive as December kicks off, though it should be pointed out that, despite the "Santa Claus rally" tradition, the 12th month of the year hasn't always been favorable to stocks, with recent sizable declines in 2018, 2022 and last year.

The most notable stock-market research over the weekend comes from academia, where researchers studied those rascals in Congress and their proclivity to trade. But the new angle here is that it's actually leadership - heads of the party, plus party whips and caucus chairs - who are the stock pickers to watch.

"We find that lawmakers who later ascend to leadership positions perform similarly to matched peers beforehand, but outperform them by 47 percentage points annually after ascension," finds the study circulated by the National Bureau of Economic Research from Shang-Jin Wei, a Columbia University professor, and Yifan Zhou of Xi'an Jiaotong-Liverpool University.

That's a big gap in performance, but there's a logical explanation. First of all, leaders would have control and knowledge of the legislative agenda, not to mention influence on regulatory activity and federal procurement.

The other key difference is access to corporate executives. "After ascension, congressional leaders earn significantly higher abnormal returns on trades involving firms that either contribute to their campaigns or are headquartered in their home states - relationships likely to grant privileged access to firm-specific information," the study finds.

Another finding: that leaders' stock purchases reliably indicated positive corporate news within a year, and vice versa. Furthermore, the news that the congressional leaders tended to "predict" was information that corporate executives would have, i.e. dividend increases, and not information the executives would not have, like lawsuits.

Granted, studies on congressional trading have some limitations, most notably that disclosure of the magnitude of trading is reported in ranges rather than in set dollar amounts. It's also a very small sample - between 1995 and 2021, which were the dates studied, there were a total of 47 individuals who were congressional leaders, 20 of whom made stock trades both before and after ascension to leadership. The study's methodology was to match leaders to nonleaders based on tenure, party, chamber, sex and age. Furthermore, this is a working paper, meaning the study has yet to be peer reviewed.

It's also fair to wonder how much of this outperformance is that of Nancy Pelosi, who first ascended to a leadership role in 2001 and whose husband, Paul, is a venture capitalist. The study doesn't specifically split out Pelosi trades, but it does run tests excluding the most active traders, and finds leadership still wildly outperforms the rest of Congress. It also ran a test excluding the members of Congress whose returns were the strongest, and the leadership performance gap if anything improved slightly.

The passage of the Stock Act in 2012 did result in fewer stock-market transactions for members of Congress generally, but no visible changes in terms of average stock-trade size or superior return for the leaders, the study added.

The market

After what was more or less a flat November for the S&P 500 SPX, U.S. stock-market futures (ES00) (YM00) (NQ00) pointed lower. Oil (CL00) and gold (GC00) futures rose.

   Key asset performance                                                Last       5d     1m      YTD      1y 
   S&P 500                                                              6849.09    2.15%  -0.04%  16.45%   13.26% 
   Nasdaq Composite                                                     23,365.69  5.83%  -0.91%  21.00%   22.59% 
   10-year Treasury                                                     4.046      1.40   -6.70   -53.00   -15.20 
   Gold                                                                 4290.1     3.79%  6.89%   62.55%   61.17% 
   Oil                                                                  59.43      0.92%  -2.61%  -17.31%  -12.82% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

The Bank of Japan's governor said the central bank will discuss a rate hike, a comment that lifted the yen and yields on Japanese bonds.

President Donald Trump said he's picked a new Fed chair but didn't disclose who that person is.

The key Institute for Supply Management manufacturing report is due at 10 a.m. Eastern time.

Coupang shares (CPNG) slumped as the South Korean retailer disclosed a massive data breach.

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The chart

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   PLTR    Palantir Technologies 
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   AMZN    Amazon.com 
   INTC    Intel 
   MSFT    Microsoft 

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-Steve Goldstein

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12-01-25 0900ET