What Congress Is Buying: A Defensive Rotation Signal or Just Political Noise?

The core transaction is clear. In late December, Senators Tommy Tuberville and Shelley Moore Capito executed a near-simultaneous trade: they sold shares of Magnificent 7 tech giants and bought defensive sector ETFs. The question is whether this is a smart money signal or just typical political noise.

Tuberville's move was the more substantial. On December 17, he sold $50,000 to $100,000 in Apple stock and $1,000 to $15,000 in Alphabet stock. That same day, he bought $15,000 to $50,000 in State Street Consumer Staples Select Sector SPDR ETF (XLP), $15,000 to $50,000 in State Street Utilities Select SPDR ETF (XLU), and $15,000 to $50,000 in State Street Health Care Select SPDR ETF (XLV). Capito's trades were smaller in scale, with $1,000 to $15,000 sales of Apple, Alphabet, and Microsoft on December 16, and a notable retention of her investment in Meta Platforms that others sold.

The scale here is modest-these are not whale wallets moving billions. Tuberville's largest sale was under $100k, and Capito's trades were in the thousands. Yet the pattern is telling. They are selling the high-flying, high-beta Magnificent 7 stocks-Alphabet was the top-gainer in 2025 with a 65.2% rise-and buying the defensive trio: staples, utilities, and healthcare.

This fits a broader 2025 trend where the smart money rotated into stability. As the evidence shows, defensive sectors significantly outperformed the broader market. While the SPDR S&P 500 ETF Trust (SPY) was down 1.6% year-to-date, the ETFs Tuberville bought were up 7.7% (XLV), 4.4% (XLP), and 3.1% (XLU). The market's flight to safety, driven by fears of a prolonged tariff war and slowing growth, made these sectors the winners.

So, is this a signal? For the cynical tracker, the alignment of interest matters. These senators are selling their tech winners at the peak of a rally and buying the defensive laggards. That's the opposite of what most retail investors do. It suggests a view that the easy money in mega-cap tech is made, and the next phase favors resilience over growth. Whether it's genuine foresight or just political noise, the trades themselves are a clear bet on a defensive rotation.

Decoding the Signal: Skin in the Game vs. Political Timing

The trades are clear, but the conviction behind them is murkier. The scale of these transactions-Tuberville's $50,000 to $100,000 sale of Apple and Capito's $1,000 to $15,000 sales of Apple, Alphabet, and Microsoft-is substantial for a personal portfolio, but it's a rounding error for a major institutional bet. These are not whale wallets moving billions. More likely, they represent year-end portfolio rebalancing or tax-loss harvesting, not a major conviction about the market's next phase.

The timing reinforces this. These trades happened in late December, a period when many investors, including politicians, adjust their holdings to lock in gains or losses for tax purposes. That makes the defensive rotation signal less predictive and more reactive. It's the market's flight to safety in action, but it could simply be a seasonal portfolio cleanup rather than a forward-looking bet.

The more telling signal comes from Capito's retention of Meta Platforms stock. While she sold her other tech winners, she kept her Meta shares. That's a meaningful divergence. It suggests a personal alignment of interest with a stock that underperformed the Magnificent 7 last year. For the cynical tracker, that's a stronger signal than the herd-like sell-off of the leaders. It implies she sees value where others see weakness, or perhaps she simply has a longer time horizon for that particular bet.

So, is this a smart money signal? In isolation, the trades look like a classic defensive rotation. But viewed through the lens of scale and timing, they appear diluted. The real skin in the game is not in the ETF purchases, but in the decision to hold a laggard. That's where the true conviction might lie.

The Smart Money Context: Are These ETFs Actually Accumulating?

The senator's trades are a signal, but the real test is whether institutional money is following the same defensive rotation. The answer is a qualified yes, with a major caveat: the accumulation is concentrated in one sector and driven by a powerful quarterly shift, not a steady year-long trend.

The most compelling evidence of institutional interest is in healthcare. Despite being a net outflow year-to-date, the Health Care Select Sector ETF (XLV) attracted $872 million in net new money by October 13. That made it a top equity ETF asset gatherer for the quarter, a stark reversal from its 6% of start-of-year assets in outflows earlier in the year. This isn't just a seasonal rebalance; it's a significant, concentrated bet on a sector that had been struggling.

This institutional accumulation aligns with Senator Tuberville's purchase of XLV. It suggests some smart money is indeed rotating into defensive healthcare, seeing value in its 27% discount to the S&P 500 and 9.3% projected 3-5 year earnings growth. The move is supported by strong fundamentals like drug innovation and demographic trends, making it a logical defensive play.

Yet the broader picture shows the rotation is incomplete. While XLV saw a massive quarterly inflow, the other two defensive ETFs Tuberville bought saw outflows. The Consumer Staples ETF (XLP) and Utilities ETF (XLU) both saw net outflows in the fourth quarter. This divergence is critical. It means the institutional smart money isn't broadly rotating into all defensives; it's selectively piling into healthcare, possibly due to its unique growth profile and valuation.

The bottom line is that the senator's move into healthcare is echoed by a major institutional bet, but the rotation into staples and utilities is not. The market's defensive tilt in 2025 is real, as shown by the 7.7% YTD gain in XLV versus SPY's -1.6% return. But the smart money's accumulation is a focused, quarterly phenomenon, not a steady, broad-based shift. For now, the skin in the game is heavily weighted toward healthcare.

Catalysts and Risks: What to Watch Next

The defensive rotation thesis hinges on two key catalysts. First, watch for further congressional trading disclosures in the first quarter of 2026. The pattern set by Senators Tuberville and Capito was a one-off. If other members of Congress begin systematically selling Magnificent 7 stocks and buying defensive ETFs like XLP, XLU, and XLV, it would lend credibility to the signal. The data from Unusual Whales shows members of Congress have a track record of outperforming the S&P 500, suggesting their trades could be a filter for smart money. But if the pattern doesn't repeat, it was likely just isolated portfolio rebalancing.

Second, monitor the performance of those defensive ETFs relative to the S&P 500 through Q1. The rotation was a major driver of 2025's market action, with defensive sectors like XLV up 7.7% year-to-date while SPY was down. For the thesis to hold, that outperformance needs to continue. The institutional accumulation in healthcare, with $872 million in net new money by October 13, provides a fundamental anchor. But the rotation into staples and utilities is weaker, with both XLP and XLU seeing outflows in the fourth quarter. Sustained leadership from XLV would confirm the smart money's selective bet, while a broad-based rally in all three would validate a wider defensive tilt.

The key risk is that these are isolated, small trades by politicians with inherent conflicts of interest. The scale of Tuberville's and Capito's transactions-$50,000 to $100,000 in Apple and similar amounts-means they are not moving markets. More importantly, their trades could be driven by tax-loss harvesting or year-end portfolio cleanup, not a conviction about the market's next phase. The cynical tracker must separate the signal from the noise. While the institutional accumulation in healthcare is a tangible bet, the senatorial moves are a whisper, not a command. Until other members follow suit and the defensive ETFs keep climbing, treat this as an interesting data point, not a reliable roadmap.