Tackling The Super Bowl Indicator

By Socrates Alvarez | February 01, 2012 AAA
Tackling The Super Bowl Indicator

There are many indicators in the economy that can illustrate and determine market trends, with the price of oil, unemployment rates and geopolitical issues being the most common. Some of these indicators are academic while others seem almost inconsequential. In commodity markets, weather patterns are often correlated to the price of goods such as wheat and even oil futures. In determining employment levels, there exists some nearly spurious, yet almost common-sensical, indicators such as the Hot Waitress Economic Index, which measures economic health based on the number of attractive waiters and waitresses employed in the service industry. One auspicious gauge that seems irrelevantly connected to the economy is the Super Bowl Indicator (SBI), which may be on the minds of investors as the Giants and Patriots face off this Sunday.

See: World's Wackiest Stock Indicators.

Origins
The SBI enjoys a history dating back to the first championship, when this darling of American sports broadcasting graced the airwaves in 1967. The Super Bowl was a marriage of the competing leagues' football organizations, the National Football League and the now defunct American Football League, where teams from the rival associations were pitted against each other in one highly watched contest.

According to the indicator, when the team whose origins date back to the original NFL wins the Super Bowl, investors should expect an uptrend in the market; when an AFL-descended team wins, a downward movement is to be expected. Since the 1960s, this indicator has boasted a nearly 80% accuracy rate, which for some might provoke investment in the S&P this year if the Giants win.

Let's Look at the Replay
Thus far, 36 out of 45 Super Bowl championships have given support for this indicator, with nine of the games resulting in the winner heralding the opposite effect on the economy. The 1983 Super Bowl victory by the Washington Redskins came with a roughly a 19% jump in the markets. In 2010, a 31 to 17 score in favor of the NFC New Orleans' Saints coincided with an approximately 12% gain in the S&P 500. In 1973, the market became bearish during Super Bowl VII, when the AFC's Miami Dolphins beat out the Redskins 14 to 7.

1987 saw some indication of accuracy, with the Giants beating the Broncos and the S&P seeing growth at nearly 31%; however, October of that year saw Black Monday, driving the market into a tailspin. 2000 also saw a dip in the economy, despite a win from the St. Louis Rams, in lieu of the dotcom crash, rather than Mike Jones's legendary tackle of Kevin Dyson. The same shortfall of the indicator occurred in 2008, at a significantly higher and pervasive scale, when the markets suffered the largest blow since the Great Depression, despite the NFC's Giants winning Super Bowl XLII. (Also, check out the greatest Market Crashes.)

Making Heads or Tails of It
An 80% success rate seems impressive, but it's far from being something you should take seriously. At the very most, the only realistic parallel that can be drawn between the Super Bowl and market performance is the exposure the broadcast's ads will give to the companies occupying the much coveted advertising space. The Super Bowl Indicator is a good example of, speaking in logical jargon, an ex-post-facto fallacy, in which an observer is assuming a causal relationship between two events as a result of a perceived correlation.

The SBI does not take into account other major factors that can affect the outcome, such as score spreads, team funding and player injuries, let alone the fate of the stock market. The assignment of NFC = Bull Market and AFC = Bear Market is, assuming all things equal, just as useful as a coin flip for a market predictor. As well, the reversal of this indicator holds just as much water in terms of statistical usefulness, where a bull market could mean that an NFC team is likely to win the Super Bowl. (For additional reading, see Digging Deeper Into Bull And Bear Markets.)

The Bottom Line

Regardless of whether or not it's a true representation of the health of the economy, the Super Bowl Indicator represents two important institutions that help define the national identity: the free market and football. It's tempting to believe the two are related in some way, given how profoundly ingrained each one is in American culture, but don't forget that correlation does not always imply causation. It's fun to think about, though. Irrespective of whether or not there is indeed some intrinsic connection between the two, the fact remains that investors and fans alike will be keeping their eyes glued to the screen this Sunday and Monday, hoping for a victory and market gain in their favor. (To learn more, read Economic Indicators.)

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