The Super Bowl Indicator Says: Sell Stocks!
It's that time of the year again. We're just a few days away from the biggest and most important sporting event of the year. And not just because we get a great football game and an endless amount of beer, wings and nachos, but because the outcome signals what the stock market will do for the rest of the year.
I'm serious.
The Super Bowl Indicator was first discovered in the 1970s by influential sportswriter Leonard Koppett. The indicator is very simple: if an original NFL franchise wins the Super Bowl it is bullish for the market. If a pre-merger team from the AFL (American Football League) or an expansion franchise wins the game, it is bearish for the stock market.
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1967: Green Bay vs Kansas City at the L.A. Coliseum[/caption]
The numbers don't lie. The first time they played this game was in 1967 when it wasn't even called the Super Bowl. Officially, it was the AFL-NFL World Championship Game. Some called it the Super Game. A few years later, it was finally given the name that it holds today. And from the start this indicator has worked well. The Green Bay Packers, a legendary NFL franchise, won the first two Super Bowls and S&Ps rallied 20.1% in 1967 and 7.7% in 1968.
But then Joe Willie Namath beats Johnny Unitas at the Orange Bowl in Super Bowl III. What happens? S&Ps lose over 11% that year since the Jets came from the AFL. New Yorkers weren't too happy with that outcome and the Jets haven't been to a Super Bowl ever again.
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Super Bowl III Game Program 1969[/caption]
That was the beginning of the Super Bowl Indicator. Since 1967 the average annual return for the S&P500 has been a gain of 8.33% and positive for the year 3/4 of the time. These stats improve dramatically when an NFL team wins but become much worse when they don't.
I grew up in Miami watching the Dolphins. We've been waiting patiently to get back to where this franchise was in the early 70s. But the markets get killed when they win. For example, in 1972 the Dolphins went undefeated 17-0 beating the Redskins in Super Bowl VII, which was played in January of 1973 (see Garo Yepremian). That year the S&P500 went down 17.3% - remember Miami was an AFL team. The following year Miami won again and the S&P fell 28.7%. Then the Pittsburgh Steelers won back to back titles. Fortunately for market participants, they were originally an NFL team; S&Ps went up 31.5% and 19.15% those two years. Then the Oakland Raiders won, an AFL team again, and S&Ps lost 11.5%.
When an original NFL franchise wins the Superbowl, the S&P500 averages a gain of 12%, almost a 50% better return than normal years. But most importantly, the stock market is positive for the year over 85% of the time. That is a serious success rate that we as money mangers just can't ignore. Last year was a win/win situation. We knew after the AFC and NFC championships games that the market would rally for the rest of the year. Since the 49rs were an original NFL franchise and the Baltimore Ravens are the original Cleveland Browns, another old-school NFL franchise, it didn't matter who won. Sure enough, S&Ps rallied almost 30% in 2013. (Note: There was no expansion when the Cleveland Browns turned into the Baltimore Ravens. That makes them an NFL Franchise for purposes of the Super Bowl Indicator)
This year is different, however. The Super Bowl Indicator says this is a lose/lose situation for the stock market. You see, the Seattle Seahawks were a new expansion franchise that didn't come into the league until 1976, well after the AFL/NFL merger. The Denver Broncos, of course, have always been well-known as an AFL franchise. The average return for the S&P00 under circumstances like this, where an original NFL team does NOT win the Super Bowl, is down 1.3%. This is a much different outcome.
So on average the S&P500 is up over 8% per year since 1967. When an original NFL franchise wins, it jumps up to 12%/yr with an 85% success rate. But when an AFL team or expansion franchise comes up victorious, S&Ps average negative returns. That's not good.
But here is the good news. There are exceptions to every rule and it just so happens that Denver, historically, is one of those exceptions. As we know, John Elway went out on top winning back to back Super Bowls for Denver. In both those years 1998 & 1999, Denver (a former AFL franchise) was supposed to send the market lower. But nope, in '98 S&Ps rallied 26.7% and in '99 returned 19.5%.
So there you have it folks. The truth about the Super Bowl Indicator and its stock market implications.
Tags: $SPY $DJIA
*** There is zero causation with this correlation, so none of this should be taken seriously. It's just for fun ***