Is it time to break out the Super Bowl Indicator with the chips and wings?
Photo: Keith J. Source: Pixabay
The Super Bowl indicator is my favorite example of a spurious correlation. It comes from the early history of the Super Bowl. It was discovered by a sportswriter in the ‘70s, who noted that when an NFC team won the Super Bowl, stocks went up that year. When the AFC team won, we had a bear market.
The indicator seemed to work out pretty well. For the first 30 Super Bowls, the indicator was correct three quarters of the time, as measured by the S&P 500. But over the past few years, it hasn’t been as accurate. For the past 10 matchups, the Super Bowl winner has been made a correct call only 4 times. Its overall record is now down to 56%.
Why did the indicator seem to work, and then fail? The explanation is actually pretty simple. During the early years of the Super Bowl, the AFC was mostly populated by expansion franchises that didn’t have teams that were quite as strong as the NFC. The NFC won 18 of the first 30 matchups. And since bull markets are more common than bear markets – occurring in 23 of those years – the two series lined up.
Clearly, the winner of the Super Bowl has nothing to do with the outlook for corporate profits, the economy, or market valuation. Those are what matter for determining what the market’s direction. And the indicator is a great way to illustrate the point that correlation does not equal causation. But it’s also of how statistics can mislead us.
Please don’t invest based on the upcoming game. The Super Bowl Indicator is a statistical Frankenstein – an artificial creation that seems to have a life of its own. Enjoy the game. And then put your money to work, based on your particular financial needs.
Douglas R. Tengdin, CFA