The Giants won. Is it safe to go back into the stock market?
Every year around this time market mavens trot 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 37 out of 45 years (as measured by the Dow)—an 80% 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 involves 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.
After all, the stock market seems divorced from reality at times. Earnings are up, but they disappointed expectations, so the market went down. Unemployment goes up, but it raises the hopes for Fed easing, so the market goes up. It’s a mystery. According to the legend, since the Giants—an NFC team—won last night, the market should end the year up. But the last time the Giants beat the Patriots—in 2008—that prediction didn’t work out so well.
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 significant at the 95% level. And believing something to be so doesn’t make it so, any more than clicking your heels together three times will transport you to Kansas.
The Super Bowl Indicator is specious, silly, and a waste of time. But it sure was a good game last night.