March Madness defines the time of the year when fans cheer their basketball teams and brackets are made. The annual National Collegiate Athletic Association (NCAA) is stimulating, more so because of the uncertainty surrounding the fate of the tournament. Investing in the stock market is equally electrifying as investors may win big or lose everything.
The way a fan gets gripped by the March Madness, investors closely monitor the stock market. As a matter of fact, historically, past March Madness tournaments have coincided with strong stock gains.
To top it, we are in the middle of an eight-year Bull Run, which is no fluke, since the current stock prices are well supported by the Trump-induced rally. Investors, in the meanwhile, have also cheered a Fed rate hike as it signifies strength in the domestic economy.
Given such positive trends, it will be prudent to make some bets in fundamentally sound companies that could make the most of the March Madness and move north.
March Madness – An Exciting Time of Year
Millions of Americans will agree that March Madness is charged with fun and frolic, especially, when there is money on the line. March Madness is a moniker given to the NCAA men and women basketball tournaments. It is a phenomenon that grips the national sports psyche from the middle of March through the first week of April. In fact, more number of people is expected to fill the NCAA tournament bracket than those who have voted for either Donald Trump or Hillary Clinton.
According to the American Gaming Association (AGA), a national trade group that represents the casino industry, Americans will gamble $10.4 billion on the tournament this year, up from $9.2 billion last year. This is quite a staggering figure, almost equivalent to the gross domestic product of several countries including Armenia, Malta and Namibia. Just $295 million or 3% of the betting, however, will be legal as per AGA.
The tournament is so notoriously difficult that even Warren Buffet had said that he will give $1 million every year for life to any Berkshire Hathaway Inc. (NYSE:BRK.A,NYSE:BRK.B) employee who picks this year’s Sweet 16 correctly. The human rationale used in the decision making process has many comparisons to that of investing in the equity market. Like sports analysts who seem knowledgeable enough to pick the right team to win the NCAA tournament, financial analysts also claim that they can pick the right stocks that will outperform the rest of the market.
In fact, it may be a statistical coincidence, but, the NCAA tournament seems to put Wall Street into a buying mood.
NCAA Tournaments Coincide with Stock Gains
Major U.S. stock market indices have historically posted positive results during March Madness, surging over the course of the tournament. The Dow Jones Industrials Average has risen in nine of the past 11 times, with an average return of 2.1%.
The S&P 500 has also rallied in 10 of the trailing 11 tournaments, with an average gain of 2.2%. The S&P 500 only fell in 2014, down 1.5%, when the University of Connecticut Huskies emerged victorious over the University of Kentucky Wildcats. Lest we forget, March has been traditionally the best month of the year for the S&P 500. On an average, the benchmark index increased 2.7% in March every year from 2007 to 2016 and was in the positive territory in 70% of the years.
The tech-laden Nasdaq Composite Index too has been up in eight of the past 11 tournaments, having registered an average return of 2.3%. Similarly, the Russell 2000 index, that represents the smaller companies in the U.S. stock market, went up in nine of the past 11 years, with an average gain of almost 3%. Needless to say that the tournament spills over into April, which is historically the second best performing month of the year and has better odds of rising.
Bull Market Turns Eight, Investors Cheer Rate Hike
The broader markets, in the meantime, have endured a lot of gyrations and have come a long way from the rock-bottom levels, with some of the latest gains being attributed to President Trump’s market-friendly policies. On Mar 9, the U.S. stock market had already celebrated its eighth anniversary of the Bull Run after the terrifying decline triggered by the Great Recession (read more: 5 Top Stocks to Buy as Bull Market Turns Eight).
Stock market investors can also celebrate the Fed rate hike. Even though a rate hike reduces liquidity in the market, it generally coincides with acceleration in economic growth, fueling bull market for stocks. Citing an improving labor market and greater confidence in consumers, the Fed has raised its federal funds rate to a range of 0.75% to 1% this month. The policy rate rose by 25 basis points to 1% for the first time in a decade (read more: 5 Biggest Winners from the Fed Rate Hike).
5 Stocks to Make the Most of the March Madness
Like sports analysts betting on the winners of the NCAA tournament, investors are looking for stocks that are likely to gather steam. Hence, it will be judicious to invest in some rock-solid stocks that could make the most of the bullishness in the market.
For that to happen, Zacks Rank #1 (Strong Buy) stocks will be the best choice. The stocks also boost a VGM score of ‘A’. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.