TRUCKEE, Calif. - The Super Bowl indicator is a well-known market indicator that has a success rate for just over 80 percent. A historical accuracy rate of 80 percent means that the Super Bowl indicator is one of the better markets forecasting tools that there is.Or is it?Here's how the Super Bowl indicator works. If a team from the old AFL, the AFC division, wins the Super Bowl, that is a bad omen for the stock market. If a team from the old NFL, the NFC division, wins the Super Bowl, then the stock market should have a pretty good year. So, if you want to good stock market returns for 2013, you should be rooting for a 49ers win. If the 49ers win, the market should do well, and if the Ravens win, the market should decline for the year.Last year, the Giants won and 2012 was a good year for stocks returns with the total return for the S&P 500 up 16 percent, which is substantially above the average since 1998 of not quite 11 percent.Of course the Giants also won in 2008 and we all know what happened that year. The S&P 500 fell more than 38 percent in 2008, even with a win from an NFC team. Like I said, the indicator has an 80 percent success rate, not 100 percent, so you should expect some years that it doesn't work.Let's take a look at why this indicator is so accurate. Hmmm ... I really can't find a good reason that the Super Bowl indicator works so well. The reason is that the Super Bowl indicator is a great example of what's known as "spurious correlation."A phrase scientists use is that, "correlation does not imply causation." What that means is that just because 80 percent of the time an NFC team has won the Super Bowl and the market has gone up for the year, doesn't mean that an NFC team winning has any real effect on the stock market - it's just a coincidence.Also keep in mind that most years the market increases in value. If we look back to 1988 - 24 years of market returns - there have been four years with a negative return. That means the market has increased 83 percent of the time over the last 24 years.My advice is to root for the 49ers anyway; Colin Kaepernick is practically a local, having played at Nevada, and even if the indicator is purely coincidence, a 49ers win can't hurt the market in any way.Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at his blog at www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
January 24, 2013 | Back to: News