On Super Bowl Sunday, an unlikely group of people may be the most vocal fans at your local bar: Wall Street traders. At this time every year, news pundits and financial analysts often bring up a stock market prediction scheme known as the Super Bowl Indicator?
The basic theory is that the stock market will post a gain for the year if a team from the National Football Conference (NFC) beats its American Football Conference (AFC) opponent. This year, market watchers will be rooting for the Seattle Seahawks over the Denver Broncos.
So is there any truth to the Super Bowl Indicator? Since the Super Bowl's inception in 1967, the indicator has been correct 37 out of the past 47 matches – a 78.7 percent success rate. In that sense, yes, there is a correlation between the Super Bowl outcome and market performance. But any student of basic statistics can tell your that correlation does not necessarily indicate causation.
In a 2013 MarketWatch piece, analyst Mark Hulbert raised skepticism on the theory saying:
"Not only must an indicator have a good track record in order to make it worth following, but there also should be a sound theoretical explanation for why the pattern on which it rests should exist in the first place. And I am aware of no such explanation in the case of the Super Bowl Indicator."
He also noted that during the years that the indicator predicted incorrectly, it was often very wrong. The most infamous example occurred in 2008 when the NFC's New York Giants defeated the New England Patriots. That year, the stock market fell nearly 39 percent.
Instead of concerning themselves with fad indicators, wise investors should consider actively managing their assets with portfolio risk management software.
Categories: Stock News