(Bloomberg) -- Donald Trump has a familiar refrain for how to fight inflation and stimulate the economy: “Drill, baby, drill!” But while the Republican presidential candidate’s fondness for the oil exploration has sparked previous rallies in energy stocks, Wall Street pros are largely avoiding this part of the “Trump trade.”

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The reason is simple. Any policy seeking more oil and gas production can upset a delicate supply-demand balance and drive fossil fuel prices lower, money managers warn. And although that should help reduce consumers’ energy expenses, it’s hardly a recipe for higher profits, and therefore rising stock prices, in the energy industry.

“This trade makes no sense,” said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management. “But Wall Street looks for an easy narrative and buying energy on a likely Trump win is one.”

The US already is the world’s biggest oil producer, leading Saudi Arabia with record output thanks to America’s shale boom. While boosting production in an over-supplied market is theoretically possible, doing so would depress prices for years — especially if it was to leap four-to-five times from current levels, as the former president said during Tuesday night’s debate against Vice President Kamala Harris. Investors typically tend to want capital returned as dividends or buybacks rather than redeployed to expand production.

“One reason we like the energy sector is because of the capital discipline and because they have pulled back on drilling,” said Sameer Samana, global market strategist at Wells Fargo. “If they were to go back to a ‘drill, baby, drill’ mentality, that can actually be detrimental to the sector, especially from an investor standpoint.”

Energy Politics

Then there’s the politics of it all. Going back to 1933, the S&P energy index has gained 280,000% in the 52 years when a Democrat was in the White House, compared 1,000% in the 40 years with a Republican president, according to data compiled by Jay Kaeppel, senior research analyst at SentimenTrader.

Energy stocks have been one of the most durable “Trump trades” this election cycle, as the candidate continues to focus on the industry. Last month, Trump promised at a rally in Pennsylvania that if elected he will encourage frackers and energy workers in the state to increase production on day one of his presidency, as well as open more power plants and roll back policies encouraging electric vehicles.

The S&P 500 Energy Index surged in mid-July after the assassination attempt on Trump, as the attack was seen boosting his odds for winning. The SPDR Energy Select Sector Fund saw three straight weeks of inflows leading up to and following President Joe Biden’s disastrous debate performance against Trump at the start of the summer — its longest such streak of 2024.

Then, as Kamala Harris replaced Biden and pulled ahead of Trump in the polls, investors too started leaving the Trump trade in oil and gas and the flows flipped. Polls began to show Harris had better odds of winning the election in the first week of August, and the SPDR energy fund has seen outflows every single week since then.

The same pattern played out after the highly anticipated debate Tuesday night that many pundits and voters considered a clear victory for Harris. Investors quickly dialed back several Trump trades, with the energy sector leading decliners in the S&P 500 Index on Wednesday.

Trump Trade Bust

Yet, a look at recent history shows that investors may have been a bit hasty. During Trump’s four years in office, the S&P 500 Energy Index dropped 40%, but it has risen around 96% under Biden. And while Trump did increase oil production, it has hit a new high of 13.3 million barrels a day with the Biden in office.

“Democratic regimes have generally been more restrictive from a policy and regulatory perspective, which limits supply and can often equal better prices,” Leo Mariani, an analyst at Roth Capital Partners, said.

Of course, the sector’s performance depends on many factors beyond the US election and government policies. Decisions by OPEC, the health of the global economy, the state of geopolitics and large secular forces like the ongoing transition to clean and renewable energy sources all weigh on these stocks. Indeed, the recent drop in oil prices dragged them down, with the sector losing 6% in the last month to become the worst-performing group in the S&P 500 this year.

This explains why the Trump trade actually is far down the list of reasons to buy oil and gas stocks for industry experts like Dan Pickering, chief executive officer at Pickering Energy Partners. Instead, he’s focused on rock-bottom valuation multiples, record free cash flows and rising share buybacks.

Trump is a bit of a “wild-card on the energy front,” Pickering said in a phone interview, noting that in the past the Republican candidate has asked Saudi Arabia to produce more oil, which would hurt US producers. If an investor expects Trump to win, Pickering said it makes more sense to sell or short the shares of renewable energy companies in the wind business.

A Trump victory would be “more of a negative for clean energy than it is a positive for oil and gas,” he said.

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