The average U.S. legislator beat the S&P 500 index by a wide margin in 2022, with two House representatives earning more than 50 percent for the year, a report revealed. Members of Congress have done quite well in the stock market over a period during which most major equity indexes yielded negative returns.
A new report by stock market-tracking website Unusual Whales—which aggregates publicly disclosed investments by U.S. officials and tracks their portfolio performances—has raised concerns about insider trading on both sides of the aisle. Congressional trades are made public by the Stop Trading on Congressional Knowledge Act of 2012, which requires that members of Congress publicly disclose investments within 45 days of the transaction.
On average, Democratic legislators were down by just 1.8 percent on the year, while Republicans were up by 0.4 percent. These returns may seem moderate, but the benchmark S&P 500 index returned negative 18.2 percent over the same period.
Source: Unusual Whales
Some members stood out among the crowd, specifically Reps. Patrick Fallon (R-Texas) and Debbie Wasserman Shultz (D-Fla.). Both earned more than 50 percent returns for the year, far outpacing, for example, legendary value investor Warren Buffett, whose firm, Berkshire Hathaway, has averaged 20 percent annual returns throughout its 60-year career.
Former House Speaker Nancy Pelosi (D-Calif.)—who has been in hot water in recent months over allegations of insider trading—was down by 19.8 percent in 2022, underperforming the S&P 500. Pelosi opposed the concept of barring politicians from trading individual stocks, arguing that she and her colleagues should be free to participate fully in the free market economy.
The frequency by which many congressional members transacted in the market suggests that it was more than a part-time hobby for some.
Topping the charts for most trades made in 2022 was Rep. Ro Khanna (D-Calif.). The congressman made a whopping 5,777 individual trades in a single year, equating to nearly 16 trades per day, handling upward of $151 million in volume.
Khanna wasn’t alone in the House. Rep. Michael McCaul (R-Texas) executed 1,683 individual transactions for a total of $176 million in volume.
Members of the Senate took part as well. Sens. Bill Hagerty (R-Tenn.) and Richard Blumenthal (D-Conn.) traded $42.1 million and $25.9 million in volume for the year, respectively.
There are notable tech companies, as well as oil and gas stocks, among the top 10 stocks favored by the House. The top 10 stocks purchased in the Senate were infrastructure and technology stocks. And the top 10 sold stocks were primarily technology and food/commodity-related, according to the report.
Source: Unusual Whales
Many have raised concerns about insider trading in response to these oddly successful congressional investment returns.
“Political inside information certainly seems to help,” Ross Gerber, founder of wealth management firm Gerber Kawasaki, wrote in a tweet in reply to the report.
Trial lawyer and legal blogger Max Kennedy called for stricter financial regulations for elected officials.
“All portfolio changes of any sort should be disclosed immediately and trading on individual stocks should be illegal,” Kennedy wrote in a Jan. 4 tweet.
However, Congress beating the market isn’t a trend unique to 2022.
In 2021, for example, the S&P 500 returned 13.6 percent for the year—a banner year for the index. House reps on both sides of the aisle still managed to beat it, as the average member earned 14.7 percent, according to last year’s report by Unusual Whales.
In March 2022, the prior report caught the attention of Rep. Abigail Spanberger (D-Va.), who promoted it to draw attention to her TRUST in Congress Act. Her bill—introduced last year but never voted on—would require members of Congress to place assets into a trust upon assuming office and only allow them to liquidate once they’ve departed.
Several other proposals have been put forth, but none have been enacted. Nevertheless, political pressure has mounted for something to be done.
“There’s real momentum for banning members of Congress from owning and trading individual stocks,” Sen. Elizabeth Warren (D-Mass.) wrote in a February 2022 tweet. “It’s about time we do this.”
It’s unclear whether meaningful legislation on the issue will pass.
In a humorous irony, Unusual Whales has collaborated with Subversive Capital to launch two exchange-traded funds (ETFs) that allow retail investors to trade alongside Congress. The publicly traded “Republican Trading ETF” and “Democratic Trading ETF” track assets that “members of United States Congress and/or their spouses also have reported to have invested in through public disclosure filings,” according to Subversive’s filing with the Securities and Exchange Commission.
Political trading is one area that has received little attention in the past. The author of the “Unusual Whales” reports, who wishes to remain anonymous, began issuing these reports two years ago, detailing politicians’ gains and losses in order to promote market transparency.
“Whether politicians should be able to trade or not is not the role of a data provider,” he told The Epoch Times in an email.
“However, numerous individuals, including some politicians themselves, have noted a possible conflict of interests in legislating and trading.”
