Updated February 7, 2016
It’s Super Bowl time and once again my beloved Packers are not playing. Every year the Super Bowl Indicator is resurrected as a forecasting tool for the stock market.
This indicator says that a win by a team from the old pre-merger NFL is bullish for the stock market, while a win by a team from the old AFL is a bad sign for the markets. Looking at this year’s game, Denver is an original AFL team while Carolina has been in the NFC since becoming an expansion team in 1995.
According to the Wall Street Journal the indicator seems to work around 70% of the time mostly because old NFL teams (which include the Steelers, Colts, and Ravens) have won a majority of the time (there is a 70% probability of this according to the WSJ article). A notable exception occurred when the Broncos won in 1998 and 1999 and the stock market went up both years.
What should you do?
My suggestion is to enjoy the game, the halftime show, the commercials, and eat plenty of unhealthy food.
As far as your investments, I think you’ll agree that the outcome of the game should not dictate your strategy. Rather I suggest an investment strategy that incorporates some basic blocking and tackling:
- A financial plan should be the basis of your strategy. Any investment strategy that does not incorporate your goals, time horizon, and risk tolerance is a bit flawed.
- Take stock of where you are. What impact has the bull market of the past six plus years and the rocky start to 2016 had on your portfolio’s asset allocation? Perhaps it’s time to rebalance.
- Costs matter. Low cost index mutual funds and ETFs can be great core holdings. Solid, well-managed active funds can also contribute to a well-diversified portfolio. In all cases make sure you are in the lowest cost share classes available to you.
- View all accounts as part of a total portfolio. This means IRAs, your 401(k), taxable accounts, mutual funds, individual stocks and bonds, etc. Each individual holding should serve a purpose in terms of your overall strategy.
How has the Super Bowl Indicator done?
According to another article in the Wall Street Journal, ” As illogical as it sounds, for seven years in a row the outcome of the game has foretold the stock market’s direction for the year. Overall, this now has happened after 40 of the 49 Super Bowls, for an 82% completion rate.” Today’s game is Super Bowl 50. Respected Wall Street analyst Robert Stoval says, ““There is no intellectual backing for this sort of thing, except that it works.”
This, combined with having a long-time client who lives in Charlotte will probably cause me to lean towards the Panthers a bit, but certainly as a fan seeing Peyton Manning win it all in what should be his last game is appealing as well.
Notable misses during this time period:
- St. Louis (an old NFL team) won in 2000 and the market dropped.
- Baltimore (an old NFL team that was formerly the original Cleveland Browns) won in 2001 and the market dropped.
- The New York Giants (an old NFL team) won in 2008 and the market tanked in what was the start of the recent financial crisis.
The Super Bowl Indicator is another fun piece of Super Bowl hype. Your investment strategy should be guided by a financial plan, not the outcome of a football game.
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