The Super Bowl Indicator Has Failed Recently

From Gary Alexander at Navellier Market Mail:

Whether you favor the AFC’s New England Patriots or the NFC’s Philadelphia Eagles in Super Bowl LII, most investors are aware of the Super Bowl Indicator, which basically says that the market will go down in a year in which the AFC team wins, and it will go up if an “old-line NFL” team wins the Super Bowl.

Like any artificial retro-fit coincidental indicator, the Super Bowl Indicator worked pretty well for a very long time. From 1968 to 1982, the market mostly declined at a time when the AFC won most Super Bowls. Then, from 1983 to 1997, when the market mostly rose, the NFC won most of the Super Bowls.

The Super Bowl Indicator worked for 30 of the first 31 Super Bowls, missing the mark only in 1990. So: If a coin flip comes up heads 30 of 31 times, what are the chances it will come up heads the next time? The correct answer is 50%, but some will bet the trend (heads) while others will say, “Tails is overdue.” A whole industry (gaming) is built on the war between casinos filled with trend-followers vs. contrarians.

The Denver Broncos ended the Super Bowl Indicator’s 31-year 97% winning streak. In both 1998 and 1999, Denver won the Super Bowl, but the bull market of the late 1990s just kept charging higher. Then, in 2000, the St. Louis Rams (NFC) won, and the market fell. Then, in 2001, the Baltimore Ravens (an old-line NFL team) won, but the market kept on falling. In 2008, the NFC New York Giants won the Super Bowl, but 2008 turned into the worst market year since the 1930s. The Indicator had flipped!

One of the big problems with the Super Bowl Indicator is the slippery definition of “old-line NFL.” Some recent Super Bowl winners are currently aligned with the AFC, but they are also old-line NFL teams: The Indianapolis Colts (2007 winners) were once the Baltimore Colts, while the Baltimore Ravens (the 2013 champs) were once the Cleveland Browns. The AFC Pittsburgh Steelers (2006 and 2012 winners) are also from the old-line NFL. The market went up in all four of these years, but are these teams AFC or NFL?

I’m sure that much of this Super Bowl lore is pure entertainment. I’m not sure if anyone ever believed it, but some newspapers are desperate to fill their news pages in winter, so the Super Bowl Indicator was first offered (perhaps in jest) in 1978 by a New York Times sports reporter named Leonard Koppett, who mocked some other silly sports statistics in his Sporting News article, “Carrying Statistics to Extremes.”

For the next two decades, several more tongue-in-cheek articles came out, saying that NFC teams (like Washington or San Francisco) “saved investors” by pulling out last minute wins in the Super Bowl. In 1989, the staid Financial Analysts Journal stooped to ask: “Did Joe Montana Save the Stock Market?”

The secret of the original Super Bowl correlation is that the stock market goes up more than it goes down and NFL teams won more often than AFC teams. Since Super Bowl #1 in 1967, the Dow has risen in 37 of 51 years. In the first 51 Super Bowls, old-line NFL teams won 34 times, so there was a lot of overlap.

The reason that these two historical theories worked for a time, then didn’t work, is that retro-fit theories are manufactured to fit historical data, while the future is random. You can apply this lesson to the length of bull markets, the length of recoveries, the trading range of stocks, and many other market variables. Just because something happened in the past, there is no logical reason the same thing will repeat in the future.

Posted by on January 30th, 2018 at 10:10 am

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