Photo: Stephen Luke. Source: Wikipedia
Every year around this time someone trots out the “Super Bowl Indicator” to discuss whether the stock market is going up or down this year. A seemingly strong correlation appears to exist between who wins the Big Game and how the market performs in the ensuing year. According to this theory, a win by the AFC heralds doom and gloom, while an NFC victory means happy days are here again.
This indicator has been on the money 39 out of 48 years (as measured by the Dow)—an 81% success rate. Most people know that the outcome of a football game has nothing to do with global capital markets, but now the thinking is that this indicator may involve mass psychology: if enough people believe the market will move one way or another, they will collectively transform their belief into a self-fulfilling prophecy.
Internet Poll. Source: CNBC
After all, the stock market seems divorced from reality at times. Earnings can be up, but they disappoint expectations, so the market goes down. Unemployment may rise, but it could raise the hopes for Fed easing, and the market rallies. Bad news can end up being good news. According to the legend, since the Broncos—an AFC team—won on Sunday, the market should go down. But sometimes—like in 2013, when the Ravens won—that prediction goes awry. That year the market was up 30%.
Correlation doesn’t equal causation. There is no credible mechanism to translate the result a sporting event into economic, financial, and market performance. In a list of 100 random variables, 5 of them will be statistically significant at the 95% level. And believing something to be so doesn’t make it so, any more than sprinkling pixie dust on you will allow you to fly.
The Super Bowl Indicator is specious, silly, and a waste of time. But it sure was a good game on Sunday.
Douglas R. Tengdin, CFA
Chief Investment Officer