How Reliable is the Super Bowl Indicator?

2/11/2022

Opinion

0 min read



  Image Credit: Fabricio Trujillo (Pexels)

The Super Bowl Indicator, If You’re Long You May Want to Root For the Rams

If you’re choosing between watching
the Olympics or the Super Bowl, this may help. Sunday night around 6pm ET, the
women’s 300M speedskating relay will be competing head-to-head against Bengals
versus Rams. While the Winter Olympics only comes around once every four years
and includes countries from around the world, for investors the annual big football game between the top two cities is considered to be a remarkable harbinger for
market moves.

So if you’re concerned about what the market may do Monday morning and throughout the rest of the year, you may not want to pass up on what’s going on in Los Angeles. Many say the big game has statistical significance to the market returns for the year, and if you’re long stocks, you should be cheering for the Rams, here’s why. The Super Bowl Indicator is considered one of the most consistent market predictors of the stock market. And as most investors today will tell you, the stock market could stand to gain a few yards this year. After all, even the Dow has returned a negative 2.91% since the beginning of the year.

Football to the Rescue?

In the late 1970s, sportswriter Leonard Koppett discovered a connection between who won the National Football League’s (NFL) championship game and how the stock market did over the following 11 months. Since then, market strategist Robert H. Stovall kept tracking it. Stovall passed away in 2020, but the tradition is alive and well.

At its most basic level, the Super Bowl Indicator predicts that if the winning team is from the National Football Conference (NFC) or was part of the NFL prior to the 1970 merger with the AFL, then stocks will be bullish for the year. If victory instead goes to the team that comes from the AFC, then the market will be bearish over the remainder of the year.

From 1967-2015, the indicator was accurate 40 times out of 49 years. That’s an accuracy rate of 82%. Hard to beat that however, over the past six years, the indicator has given some false readings. As of the 2021 Super Bowl, the indicator lost some of its magic and has been right 41 out of 55 games, that’s a 75% win rate.

During the years 2016 and 2017, when two AFC teams won, the Denver Broncos and the New England Patriots, the market defied the indicator and rose. Then in 2018, when the Philadelphia Eagles won, an NFC team, the market fell.

During the 2019 and 2020 Super Bowls, two more AFC teams won, the Patriots and the Kansas City Chiefs, and we experienced strong markets.

Finally, in 2021 after a five-year stretch where the indicator kept followers out of the market, it sent the correct signal. The Buccaneers, an NFC team, won, and the market rose about 27%.

2022 Super Bowl

The Rams are the team to pick if you’re long, whereas a Bengal win would indicate the market closes in negative territory.

It’s science, right? Sure, the same quality of science as the Santa Claus Rally that didn’t come last year. Or the sell in May folks that walked away and missed the double-digit rally that occurred through October. Or the more recent “January effect” that forgot it was supposed to lift stocks – the Superbowl indicator may be remarkable, but it probably isn’t useful.

The truth is the ability to predict market direction based on the classification of the team that spills the most Gatorade at the end is more fun than functional. What is functional is a portfolio built with solid blocking and tackling using fundamentals. There is no substitute for lining up the right players for your portfolio, then putting them in play when you think they will contribute best to your holdings. Fundamental analysis combined with any number of entry methods is what builds winning portfolios.

When choosing stocks to add to your line-up this year, let Channelchek do some of your blocking and tackling. Sign-up for research and articles sent to your inbox throughout the day. And if you want to do some more serious scouting, the NobleCon18 Conference in April is free
to investors.

Paul Hoffman

Managing Editor, Channelchek

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