How the Super Bowl Indicator is An Exercise in Randomness
Some say there is actually a difference in the performance of the stock market based on which team wins the Super Bowl. Have you heard this one before? Individuals are making financial predictions and decisions based on this particular sporting event. It’s an interesting topic that has been kicked around (pun intended) for many years. Let’s take a look at this phenomena as we approach Super Bowl LIII (or if you skipped Latin in high school, Super Bowl 53).
First, let’s have a little history.
The Super Bowl came about so the AFL (American Football League) champions could play the NFL (National Football League) champions. The AFL had its first season in 1960, while the NFL began in 1920. The AFL joined the NFL right before the 1970 season, forming the National Football Conference, or NFC, and the partnering AFC, the American Football Conference. In a move to even out the number of teams per league, a few teams moved over from the NFC to the AFC.
Out of the 52 Super Bowls previously played, the AFC has won 25, and the NFC has won 27. The big winners have been the Pittsburg Steelers with six wins, the Dallas Cowboys, San Francisco 49ers, and New England Patriots with five wins each, and the New York Giants and Green Bay Packers with four wins to their names.
So What Does This Have to Do With the Stock Market?
Interestingly enough, if you look at the statistics from the last 52 years, you can see that a pattern has materialized. This pattern has been named the Super Bowl Indicator. However, if you look at the data from the last ten years, one of the most extended bull markets in history, the model doesn’t exactly hold up.
When we look at the data when the winner is an NFC team or a former NFL team (the Ravens (previously the Browns), the Colts, or Steelers), more frequently than not, the stock market has gone up that year. On the flip side, when an AFC team wins, more frequently than not, the market has fallen.
But what about last year? The Philadelphia Eagles beat the New England Patriots 41-33, and the Dow Jones Industrial Average (DJIA) lost about 6%. And again, we didn’t see the indicator hold water as the Patriots defeated the Atlanta Falcons the year before that. The DJIA swelled 25% that year. Let’s go back one more year. The Carolina Panthers were beaten by the AFC champs, the Denver Broncos with a score of 24-10. The DJIA went up more than 13% that year.
So the indicator was incorrect for three years in a row, as well as in 2009 and 2013. But, in 2010, 2011, 2012, 2014, 2015, it was correct. If we want a ratio, the indicator was accurate 50% of the time over the last ten years.
Who Came up WIth the Super Bowl Indicator?
Leonard Koppett, a New York Times sportswriter, dawned the “Super Bowl indicator” in 1978. He had seen 10 of the 11 Super Bowls, at that time, had directed the DJIA based on the winning team. He observed that when an NFL team won, the DJIA went up for the year, and when an AFC team won, it went down. Oddly enough, Koppett’s indicator seemed to be correct for many years; for 40 of the 52 Super Bowls to be exact. If we look at the S&P 500 end-of-year numbers, out of 53 Super Bowl years, the indicator has been correct 33 times, which is a rate of 62%.
But How Can This Be? Football and Markets?
There is, actually, a pretty explanation for what we see here.
The DJIA typically increases, as it has done for 37 out of the last 52 years. Also, the NFC /prior NFL teams usually win the Super Bowl, as they have done so 37 of 52 times. In 29 of those, they both occurred during the same year. So to those of us watching this, seeing the DJIA predicted correctly according to which conference wins the Super Bowl almost 77% of the time, it truly does seem like something is going on here.
So it would make sense to go ahead and put your money on a 2019 stock market decline given the Patriot’s 2.5 point favor over the Rams, correct?
Not so fast.
While there is no doubt that there is a fascinating correlation between which team wins the Super Bowl and the fate of the stock market, there is naturally, no causation. You simply cannot give credit for a market turns to the Patriots much-lauded passing game or the Steeler’s celebrated defense.
In typical fashion, people look for rational, predictable patterns in random data in order to fulfill a personal need to make sense of something, well, nonsensical. And sometimes we do it just to make life a little more interesting. But of course, the secret to successful long-term investing does not lie in football indicators. Behavioral investing errors based on market whims, fads, or folklore will never outweigh careful and thoughtful consideration of your goals and risk tolerance. Take the time to discuss your long term goals with your fiduciary financial advisor.
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