Sunday, February 2, 2014

Super Bowl Stock Market Indicator

The Super Bowl Indicator is always a fun and interesting signal to watch this time of year. The Super Bowl Stock Market Predictor is if an original NFC team wins, markets will be bullish for the year. If an original AFC team wins, the markets will print a bearish yearStatisticians estimate the correlation to be about 75% accurate so it is something fun to follow. The Denver Bronco's are the AFC entry this year and the Seattle Seahawks are the NFC entry. Thus, if you are a market bull, you are rooting for the Seahawks and if bearish the markets, you are rooting for the Bronco's. Comically, the two Denver wins in 1998 and 1999 resulted in two strong stock markets years rather than weaker years.

The indicator becomes very subjective and wishy-washy time to time since the football league restructured in 1970 and sometimes there are two original NFC teams in the big contest providing the market bulls a happy outcome no matter what. The original National Football League teams Cleveland Browns, Baltimore Colts and Pittsburgh Steelers joined the newly formed AFC when the leagues restructured. Wins by these teams favor a bullish stock market.

For last year's 2013 Super Bowl, the Baltimore Ravens, AFC but an original NFL team, and San Francisco 49er's (NFC) were both forecasting a bullish market for 2013 no matter what the outcome. Since Baltimore is in the present day AFC, and won, to choose sides, the AFC win pointed towards a bearish stock market for 2013. Instead, the broad indexes catapulted +30% higher last year. So much for the worth of the indicator although, as mentioned, the original intent and guidelines of the indicator (both are NFC teams) did correctly provide the nod to the bulls for 2013. This example describes the wishy-washy subjectiveness that sometimes occurs.

For this year's twist, Seattle actually flip-flopped back and forth from AFC to NFC for a few years before landing in the NFC so the case can be made that there are actually two AFC teams in the big game today which provides the bears the winning hand no matter what the outcome. To phrase it a different way, Denver is AFC and Seattle was a later expansion team so there is 'no original NFC team' in the game today so the market bulls cannot win. Isn't that an interesting twist? (The opposite of last year's set-up where both teams were NFC and the bears could not win.)

Other past comical occurrences with the Super Bowl Indicator include the New York Giants (NFC) win against the New England Pats (AFC) in the 2008 Superbowl.  Do you remember what happened in 2008? Yes, an epic market crash, so always take this indicator with a healthy grain of salt. Other interesting years include Denver's (AFC) wins in 1998 and 1999 that predicted bear markets, but instead heralded continued bullish markets topping out the secular bull pattern and the 2000 St Louis Ram's (NFC) win against the Tennessee Titans (AFC) that predicted a bull market but instead ushered in the dotcom crash.

If the bulls receive the nod, the average market gain is 10% to 11% for the year. If the bears receive the nod, the markets lose an average of 4% to 5%. Interestingly, the Monday following the Super Bowl is typically a down market day about two-thirds of the time, probably because of thin markets due to traders staying home nursing hangovers.

For this year, 2014, to keep it very simple and bottom line the Super Bowl Indicator (ignoring the case that actually two AFC teams are playing), if the Denver Bronco's (AFC) win, the market bears will enjoy a down year for equities. If the Seattle Seahawks (NFC) win, the market bulls will run the broad indexes higher in 2014. Good luck to both teams today. Most importantly, the black and gold Pittsburgh Steeler dynasty remains in place with six Super Bowl wins, more Super Bowl wins than any other NFL team. When Keystone was asked which team would win today, he confidently replied, "the team with the most points."

Note Added 5:30 AM on 2/3/14: The Seattle Seahawks embarrass the Denver Bronco's crushing them 43-8 with Seattle claiming its first Super Bowl win. Congratulations. Seattle is an NFC team so the Super Bowl Indicator says the bulls will send the stock market about +10% higher by the end of the year. Interestingly, as discussed above, Seattle is not an original NFC team so there is no NFC team this year and the bears will send markets about -5% lower no matter who won. Thus, each side can claim victory with the indicator. This year's set up is the exact mirror image of 2013 where the AFC won pointing to a down market but both teams were original NFC so the bulls receive the nod no matter what, and of course last year's market was up. Thus, for 2014, does the indicator follow the pure-play rule that the NFC now points to a higher stock market for 2014, or, like last year, the indicator follows its intended roots, and since no original NFC team was in the game, then the bears automatically receive the nod for 2014? In other words, pull out the game coin and flip it. In 11 months we will know the answer.

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