What is the Soccer Mom Indicator?
The soccer mom indicator is an informal, lagging economic indicator that looks to what people are talking about at their children’s sports events to determine how the economy or a market sector was recently performing.
- The soccer mom indicator is an informal, lagging indicator of economic and market trends.
- It is not a rigorously tested, quantitative indicator, but it may have some basis in economic theory in that it lags behind market trends.
- This indicator is viewed by some activist investors as not just a lagging indicator, but potentially as a counter-cyclical leading indicator.
Understanding the Soccer Mom Indicator
The soccer mom indicator is a type of lagging indicator, in that it reports on past conditions. The basic idea underlying this indicator is that by the time economically relevant information makes it down to the level of coming up in small talk between parents on the sideline of a soccer game, it is already available to all market participants and is priced in to any related assets. This should be expected under even the weakest forms of the efficient market hypothesis (EMH).
Unlike many other lagging indicators, which are more formal and quantitative, the soccer mom indicator is informal and anecdotal. Investors listening to what financial or economic topics come up at children’s soccer games are not conducting their research with the rigor and detail of an academic. They aren’t entering their findings as quantitative data, subjecting them to statistical testing, and running them through an algorithm to generate a prediction either. The indicators appeal lies in its practical simplicity: if soccer moms and dads are talking about it, then it’s old news.
The Soccer Mom Indicator and Trend Reversals
The more cynical version of the soccer mom indicator suggests that whatever economic trends have made it into common conversation must be about to change course. If so this could actually mean that the soccer mom indicator a counter-cyclical leading indicator; that an emerging trend or turning point in the soccer mom indicator signals an impending market move in the opposite direction.
However, this is not necessarily the case, and may simply be a form of the Gambler’s Fallacy. The price of a gallon of milk won’t fall simply because soccer moms have begun complaining about how high it has risen. For example, between 2005 and 2011, gold prices shot up by approximately 350 percent, two temporary downturns notwithstanding. That six-year price boom meant that people were jumping into the gold market, and profiting by it, long after the general public became aware of the trend.
This cynical take is naturally popular among the active investors who pay attention to the indicator since the key to beating market returns, the implicit goal of an active investment strategy, is anticipating market behavior. Active investors are looking for trades and hedges that put them ahead of market conditions, maximizing their gains. Once the general public is aware of a trendy investment maneuver, it would make sense for that maneuver to be less profitable than it once was. Whether the soccer mom indicator portends a full reversal is a separate question.
To decide whether the soccer mom indicator has turned up and a market trend will soon reverse course, therefore spoiling a recently profitable strategy, investors should look to the fundamentals driving that trend. If, for example, a particular sector that the general public is excited about does not exhibit the fundamental conditions to justify a continuing price surge, then it’s more likely that the continuing boom is living on borrowed time and entering bubble territory, continuing to climb only because the least savvy investors are still jumping in.