Should Stock Bulls Root for the Rams in Super Bowl LVI?

 Commentary  February 10, 2022 at 07:44 AM  Share & Print

 

What You Need to Know

  • The Super Bowl Indicator suggests the S&P 500 tends to to better when NFC teams win.

  • Is this just a coincidence? Of course, LPL says, but “data don’t lie.”

  • Another analyst says the indicator provides “a valuable lesson in randomness.”

Sorry to kill any suspense right away but, no, the Super Bowl and the annual Super Bowl Indicator can’t really predict what will happen with the stock market if the Cincinnati Bengals or Los Angeles Rams win the big game on Sunday.

Even LPL Research, which comments on the Super Bowl Indicator each year, included a warning to investors in its latest Super Bowl Indicator report on Wednesday, saying: “LPL Research would like to reiterate that in no way shape or form do we recommend investing based on this data, but here’s to a great game and safe Super Bowl weekend everyone!”

According to the report, “the Super Bowl Indicator suggests stocks rise for the full year when the Super Bowl winner has come from the original National Football League (now the NFC), but when an original American Football League (now the AFC) team has won, stocks fall.”

Based on that, one might be tempted to make investments very differently on Monday based on whether the AFC Bengals or NFC Rams win on Sunday.

That may not be so wise. “We would be the first to admit that this indicator has no connection to the stock market,” LPL Research said in its report.

Nonetheless, “data don’t lie,” it said, adding: “The S&P 500 Index has performed better, and posted positive gains with greater frequency, over the past 55 Super Bowl games when NFC teams have won.”

This fact (or, more accurately, this coincidence) was originally discovered in 1978 by New York Times sportswriter Leonard Koppett. Up until that time, the indicator had never been wrong.

“A simpler way to look at the Super Bowl Indicator is to look at the average gain for the S&P 500 when the NFC has won versus the AFC — and ignore the history of the franchises,” according to LPL Research.

There has been an average price return of 10.8% when an NFC team has won, versus a return of 7.1% with an AFC winner, LPL Research noted. An NFC victory, meanwhile, has led up to “a positive year 79% of the time, while the S&P 500 has been up only 65% of the time when the winner came from the AFC,” it said.

Does that mean you should root for the Rams if you are a bull? “Maybe not,” says LPL Research, noting: “Stocks have actually done just fine lately when the AFC has won. In fact, the S&P 500 Index gained 10 of the past 11 years after an AFC Super Bowl champ.”

Although there have been 55 Super Bowl winners to date, only 20 teams account for those wins, according to Ryan Detrick, LPL Financial chief market strategist.

“Of course, we’d never suggest investing based on this, but history would say that lately AFC teams have been quite good for stocks,” he said in the report. “But I’m also a Bengals fan, so I’m clearly biased.”

An ‘Outlandish Theory’

The Super Bowl Indicator is an “outlandish theory that doesn’t work anymore,” according to Rocky White, senior quantitative analyst at Schaeffer’s Investment Research. However, he said in a report on Wednesday: “I believe it provides a valuable lesson in randomness.”

Based on the indicator, “when the winner is from the NFC, which would be the Los Angeles Rams this year, the Dow averaged a return of 10.5% for the rest of the year, with 86% of the returns positive,” White said.

Conversely, when the winner came from the AFC, the index averaged a gain of about 5% with 70% of the returns positive, he noted.

“I doubt such a dubious indicator would have gained notoriety given the numbers I just presented,” but the indicator was “uncanny in its predictive power for the first 27 Super Bowls,” he said, noting that, from 1967 through 1994, when an NFC team won the big game, the DJI gained an average of 12.4% over the rest of the year, with 93% of the returns positive.

When an AFC team won, however, the index averaged a loss of 2% for the rest of the year with just half of the returns positive, he said.

Still, “it’s obvious that the winner of the Super Bowl has no effect on the stock market,” he went on to say. “We know the difference in returns is strictly due to randomness. Even when the difference is huge, like the first 27 Super Bowls. It’s an observed trend that we would not base a trade off of because it’s clearly dumb luck that it turned out the way it did.”


European Compliance Association

European Compliance Association

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