Saturday, February 2, 2008

The Connection between the Super Bowl and Wall Street

The largest audience ever is expected to be watching the Super Bowl tomorrow between the New England Patriots and the New York Giants. It is a day when die-hard sports fans, casual sports fans, and non-sports fans (just interested in the social event, food, and commercials) will be watching. One of group that may be watching with intense interest may be investment bankers. Why?

There is somewhat of a lore of the Super Bowl predicting the Stock Market.

According to the "Super Bowl indicator", a victory by an old NFL team means a gain for the Dow Jones industrial average in the following year. When a team from the old AFL wins, the market goes down.

How accurate has this indicator been? It has been 'on the money' for 32 out of 40 years. Between 1967 and 1997, it was right 28 out of 31 times. But, due to league expansion, the indicator has suffered from some intrepetive problems, especially in recent years. For example, last year's Super Bowl pitted two original NFL teams (Colts vs. Bears) against each other. Prior to last year's Super Bowl, the indicator hasn't worked in four of the previous five years, with the NFL-born Pittsburgh Steelers' win over the post-merger Seattle Seahawks in last year's Super Bowl being the only success in those years.

What does that mean for this year's Super Bowl? If you are a bull, I guess it means you have to root for the Giants, for two reasons. First, the Giants represent an old NFL team (and the Pats an old AFL team). Secondly, look at the results in the stock market (DJIA) when either the Giants or Pats win the SuperBowl.

New York Giants:

1987: +2.1 percent

1991: +20.3 percent

Avg. Pct. Change in Dow when Giants win Super Bowl: +11.2 percent

New England Patriots:

2002: -16.8 percent

2004: +3.16 percent

2005: -0.6 percent

Avg. Pct. Change in Dow when Patriots win Super Bowl: -4.81 percent

So, if you are superstitious, two reasons to root for the Giants tomorrow.

However, my predictions are the following: For the game, Patriots 38, Giants 17. For the stock market, high volatility over next month with a possible retest of the bottom that we hit 2 weeks ago, followed by a recovery of all of the losses, retest of new highs on the S&P 500 (approx 1550) by June. We will meet very strong resistance at that point, as the 1550 mark is the high point in the market both in 2000 and 2007, we will have sideways trading for the summer, then have a strong autumn led by massive profits by financial companies spurred on by the fed's interest rate cuts in January. I think we end the year up 12-15% from where we started on Jan 1st.

1 comment:

kath said...

UUUGGGGHHHH!!!! Cocameister!!!! Not only a Pats victory but such a wide margin?! I know it's unpopular, especially in these parts, but I will be whole-heartedly rooting for the G-MEN! After all, it's better for the economy! My prediction: Giants 31, Patriots 28. GO GIANTS!