Another Super Bowl win for quarterback Tom Brady and his New England Patriots could throw the stock market for a loss.
Huh?
What does the outcome of a game have to do with stock prices?
Wall Street, which is well-known for quirky indicators to predict the direction of stocks — “As January goes, so goes the year” — has also found a correlation between who wins the National Football League’s championship and annual equity returns.
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It’s dubbed the “Super Bowl Indicator.”
In a nutshell, it claims the stock market goes down in years when the winner of the big game is from the AFC (American Football Conference). A sixth title for the Patriots on Sunday, therefore, would mean trouble ahead for stocks, as the Patriots are an AFC team.
On the flip side, as the folklorish indicator foretells, the market rises if the title-winning team comes from the NFC (National Football Conference) — like this year’s underdog Philadelphia Eagles — or a team that was in the NFL before the merger with the American Football League but has since moved to the AFC.
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While this indicator may be of a “random” nature, statistical evidence suggests it has some predictive accuracy.
It has correctly predicted the annual direction of the Dow Jones industrial average 78% of the time in the 51 Super Bowls since the first one in 1967, when the Green Bay Packers beat the Kansas City Chiefs, according to data from Wall Street research firm CFRA.
While being right nearly eight of 10 times is better than “coin-toss” accuracy, it doesn’t mean the Super Bowl Indicator gets it right all the time. In fact, it got it wrong the past two Super Bowls. Last year, the AFC’s Patriots topped the NFC’s Atlanta Falcons, but the Dow posted an annual gain of 25.1%. And in 2016, when the AFC’s Denver Broncos beat the NFC’s Carolina Panthers, the Dow finished up 13.4%.
The Super Bowl Indicator, of course, in no way represents an analysis of the market based on metrics Wall Street normally uses to make forecasts, such as corporate profit growth, GDP or price-to-earnings ratios.
Many investment pros downplay its significance.
“The Super Bowl Indicator is ‘Super-Stition,'” says Brad McMillan, chief investment officer at Commonwealth Financial Network. “A great story, but like many great stories, just that. With a wide enough search, you can find something that correlates with just about anything – but actually has nothing to do with it. And that is just what we have here.”
The big-game indicator has been less accurate following the nine Super Bowls the Patriots have played, starting with their first title-game appearance in 1986, when they lost to the Chicago Bears. The indicator properly predicted the full-year direction of the Dow six of nine times, or 67% of the time, CFRA data show.
The bottom-line? No matter the accuracy of the Super Bowl Indicator, investors are advised to limit their wagers to the game itself, and not use it to make a financial bet on the future of stock prices.
“It’s a perfect example of correlation without causation,” says Sam Stovall, chief investment strategist at CFRA. “I would treat the Super Bowl Indicator as I would a daily horoscope — as a source of entertainment.”
