Stock trading by U.S. Senators and Representatives

Last spring, Senators Richard Burr and Kelly Loeffler faced fierce criticism for executing large stock trades before the stock market made its precipitous plunge in mid-March. Critics point out that these and other members of Congress began to make series of transactions (mostly sales) starting in late January, following closed-door committee meetings on the coronavirus.

We've been aggregating and publishing data on personal stock trading by U.S. Senators and Representatives, scraped from mandatory disclosure filings. Ethics aside, we wondered whether these lawmakers’ trades are a good tool for predicting future returns and what other insights can be found from the data.

Can Senators and Representatives trades be used to predict future returns?

On one hand, we can assume that our nation’s lawmakers have access to information that the rest of us do not. Will a particular firm be awarded a government contract? Will a potential new tax law benefit certain companies over others? Despite certain restrictions placed on members of Congress, they do still trade. A 2004 study by Alan J. Ziobrowski noted that, over a six-year period from 1993 to 1998, a replica portfolio of senators’ transactions outperformed the market by roughly 12 percentage points a year. Click here to track how each senator's trades have performed over the last 5 years.

On the other hand, new restrictions have been put in place via the 2012 Stop Trading on Congressional Knowledge Act (or STOCK Act) which was intended to prevent lawmakers from using nonpublic information to make a profit. In April 2020, researchers at Dartmouth College put out a paper focusing on stock trading by senators since 2012. Their findings demonstrate not only that senators’ transactions mostly underperform the market since the passage of the bill, but also that assignments on specific subcommittees do not equate with greater returns on trades in related industries.

Nevertheless, the researchers also point out that spring 2020 trading did show a “market timing and stock picking component. Sales outnumber buys … and stocks sold underperformed the market by 9%.”

Which stocks are they buying/selling the most?

This graph shows the stocks which have been bought and sold the most by U.S. Senators and Representatives from January 1 to early August 2020. Apple clearly tops the list a mix of purchases (41% of transactions) and sales (59%).

On the surface, SunRun, the California provider of residential solar, seems notable due to the large number of transactions this year. It turns out that all of the RUN transactions were made by CA Representative Alan Lowenthal. Between 2018-2020, he made a total of 72 transactions (15 purchases and 57 sales), but 49 of those sales were between late June and mid-July of this year. Likely, we are looking at an individual investor's interest in SunRun’s acquisition of Vivint, announced in early July.

A closer look at late January to mid-March tells another story. Here we see higher purchasing of pharmaceutical firms DuPont and Pfizer, and sell-offs of entertainment and retail stocks such as Caesars Entertainment (CZR) and Ross Stores (ROST). This trading could be a sign of legislators' thoughts on the coming economic impact of COVID-19.

When have we seen spikes in their trading activity?

Aside from February's pre-COVID selloff, there have been two other notable periods with abnormally high trading activity by U.S. Senators and Representatives in the last three years.

February 2019: Jerome Powell testifies to the Senate on February 26, making cautionary remarks about the economy and indicating the Fed will be “patient” about lowering interest rates. Stocks slid. Healthcare companies and banks took the greatest losses. Around the same time, new homes were at the lowest level in two years, and Apple noted an “economic deceleration” in China and lowered its guidance. What were lawmakers doing between February 1-25?

Donna Shalala seems notable. She was elected to Congress in November 2018; and, this April, she was found in violation of the STOCK Act for not publicly disclosing 556 stock transactions from 2019. She has subsequently reported that she sold a large number of stocks throughout 2019 to avoid any appearance of conflicts of interest. (She had previously served on the board of United Healthcare.) UNH was the top stock sold leading up to Powell’s February 26, 2019, Senate testimony, with five total transactions, of which two were Shalala’s.

April 2018: As background, 1Q18 was the first quarter following Trump’s tax cuts, and the U.S. economy grew faster than expected during the quarter. There are two spikes in trading sentiment in the month of April. A closer look at the data indicates that one representative was driving those particular spikes. The charts below provide more color. The majority of Capito’s transactions were between $1,000 and $15,000.

We'd love to hear more about how you've been using our data, and what additional analysis and visualizations you'd like to see for Senate and House trading. Please reach out to us at [email protected] with any questions, comments, or suggestions.