The Super Bowl Indicator Has Also Failed Recently

The Seahawks and Broncos actually have no relevance to market moves

   
The Super Bowl Indicator Has Also Failed Recently

Whether you favor the AFC’s Denver Broncos or the NFC’s Seattle Seahawks in next Sunday’s Super Bowl, most investors are aware of the Super Bowl Indicator, which basically says that the market will go down in a year in which the AFC wins, and it will go up if an “old-line NFL” team wins the Super Bowl.

Like any artificial retro-fit co-incidental indicator, the “Super Bowl Indicator” worked pretty well for a very long time. From 1968 to 1982, the market mostly went down and the AFC won most of the Super Bowls. Then, from 1983 to 1997, when the market mostly rose, the NFC won most of the Super Bowls.

The Super Bowl Indicator worked for 30 of the first 31 Super Bowls, missing the mark only in 1990. So: If a coin comes up heads 30 of 31 times, what are the chances it will come up heads on the next toss? The correct answer is 50%, but some will bet on the trend (heads) while others will say “tails are overdue.” A whole industry (gaming) is built on the war between casinos filled with trend-followers and contrarians.

Oddly enough, Denver (this year’s AFC entry) is the team that ended the Super Bowl Indicator’s 31-year 97% winning streak. In both 1998 and 1999, Denver won the Super Bowl, but the bull market of the late 1990s just kept charging higher. Then, in 2000, the St. Louis Rams (NFC) won, and the market fell. Then, in 2001, the Baltimore Ravens (an old-line NFL team) won, but the market kept on falling. In 2008, the NFC New York Giants won the Super Bowl, but 2008 turned into the worst market year since the 1930s.

What gives?

One of the big problems with the Super Bowl Indicator is the slippery definition of “old-line NFL.” Some recent Super Bowl winners are currently aligned with the AFC but they are also old-line NFL teams: The Indianapolis Colts (2007 winners) were once the Baltimore Colts, while the Baltimore Ravens (the 2013 champs) were once the Cleveland Browns. The Pittsburgh Steelers (winners in 2006 and 2012) are also from the old-line NFL. The market went up in all four of these years, but are these teams AFC or NFL?

I’m sure that much of this Super Bowl lore is pure entertainment. I’m not sure if anyone every believed it, but some newspapers can sometimes be hard put to fill their news pages in winter, so the Super Bowl Indicator was first offered (perhaps in jest) in 1978 by a New York Times sports reporter named Leonard Koppett, who mocked silly sports statistics in a Sporting News article, “Carrying Statistics to Extremes.”

For the next two decades, several more tongue-in-cheek articles came out, saying that NFC team (like Washington or San Francisco) “saved investors” by pulling out last minute wins in the Super Bowl. In 1989, the staid Financial Analysts Journal stooped to ask: “Did Joe Montana Save the Stock Market?”

The secret of this correlation is that the stock market goes up more than it goes down. Since Super Bowl #1 in 1967, the Dow has risen in 34 of 47 years. In the first 47 Super Bowls, an “old-line NFL” team won 33 of 47 contests, so there is bound to be a lot of overlap – about 74% overlap, to be specific. In fact, 28 of those 47 years overlapped fortuitously – a rising market year after a victory by an “old-line NFL” team.

Just for the record, Seattle is NEITHER an AFC team nor an old-line NFL team. In its tortured history, Seattle joined the NFC in 1976, then struggled in the AFC from 1977 to 2001 before rejoining the NFC.

So how would a Seattle victory fit into Mr. Koppett’s tongue-in-cheek theory? Answer: It doesn’t really matter. Don’t worry about any Super Bowl winner’s impact on your portfolio. Just sit back and enjoy the game. I’ll be rooting for Seattle, not for mystical stock market correlations but because I’m from Seattle.

The early line favors Denver by a field goal. If January ends with a net decline this Friday AND Denver wins on Sunday, then 2014 will seem to have two strikes” against it. But I don’t believe either theory.

For annual indicators, I prefer the “Great to Good” theory. Sam Stovall, Chief Equity Strategist at S&P Capital IQ, says that “good” years typically follow “great” years, like 2013. In the 21 years since 1945 in which the S&P 500 has gained over 20% (like 2013), the next year posted an average gain of 10% (vs. 8.7% for all years since WWII).

This theory may fail, too, but it reflects real momentum, not hocus pocus.

Written by Ivan Martchev


Article printed from InvestorPlace Media, http://investorplace.com/2014/01/super-bowl-indicator-super-bowl/.

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