A traditional predictor of the late ’70s is usually taken into account by investors ofand Wall Streetalthough in recent years it was not very accurate.
Like every year the final of the American football championship (Super Bowl) It is clearly the most important sporting event in USA and in addition to concentrating the attention of fans and the million-dollar sports betting business, it is also closely followed by Wall Street analysts and investors. Because? It happens that the result of the final is seen as an indicator that can predict the direction of Wall Street.
Last Sunday the final was played between Kansas City Chiefs (KC) representative of the American Football Conference (AFC) and the iconic San Francisco 49ers of the National Football Conference (NFC), whose winner was the now two-time champion KC who won the coveted trophy Vince Lombardi.
It happens that there is an indicator of the Super Bowl (SBI) which has gained some traction as a predictor of the future direction of US stocks. The hypothesis, first put forward by sports journalist Leonard Koppett in 1978, is this: that a victory in the super bowl for an AFC team predicts a bear market in the coming year. On the contrary, a victory for a team from the NFC portends a bull market.
So Sunday’s result could, in theory, point the way to a stock market slowdown, and dash investors’ hopes for a bull market.
But how accurate has the indicator been in the past? he asks. Mark Sherlock, strategist at the management company Federated Hermes (FH). “Unfortunately for football fans around the world, the answer is not very good. Although the indicator had never been wrong at the time of Koppett’s original thesis, his most recent performance has been woeful, being correct only six times in the last 20 Super Bowls.
About, Sherlock wrote before the Super Bowl which as die-hard investors will tell you, correlation and causation are two very different things. Although we will see the Super Bowl LVIII With interest – especially for his legendary halftime show – we won’t hold our breath to see what he has to tell us about future returns. “We note that 2024 has begun with echoes of 2020. The same teams that competed for the 54th Super Bowl, the Kansas City Chiefs and the San Francisco 49ers, They will face each other again on Sunday and it seems more than likely that we will have the same presidential candidates (Joe Biden and Donald Trump) that they dispute again the White House”said the FH portfolio leader. And although some may focus on the indicator of the superbowl To predict the future returns of the S&P 500, it is worth noting that in every election year since the creation of the Russell 2500 index (US small and mid-cap companies), it has outperformed the S&P 500. “This is certainly a trend which we hope will be maintained and repeated in 2024,” Sherlock said.
What does the history of the indicator say? In the last 10 superbowlthe balance is negative since he was right on only two occasions, it was in 2015 with the victory of the New England Patriots (AFC) and in 2021 when Tampa Bay Buccaneers (NFC) won. In the rest, even last year when he also won Kansas City Chiefs (AFC), the market went against the forecaster (2016 Denver Broncos-AFC, 2017 New England Patriots-AFC, 2018 Philadelphia Eagles-NFC, 2019 New England Patriots-AFC, 2020 Kansas City Chiefs-AFC, and 2022 Los Angeles Rams-NFC).
There is a no small issue that generates a problem with these indicator numbers. It’s that due to a combination of franchise moves, league expansion and conference changes, the Super Bowl indicator targets have moved around a bit in recent years with a growing question mark over what constitutes the line. dividing line between the teams of the AFL and those of the NFL (including the Pittsburgh Steelers). It should be remembered that in the ’70s the AFL and the NFL merged.
In any case, some analysts highlight that Wall Streetaccording to the S&P 500 index, has, on average, performed better in years when the NFC team won and worse when the AFC team was victorious in the Super Bowl.
Now, leaving aside the superbowl or political victories or defeats, FH’s prospects for 2024 remain broadly the same. They are optimistic about the US markets and, in particular, the prospects for small and mid-cap companies. “The US economy, and especially the US consumer, continue to enjoy good health and the Federal Reserve’s (Fed) fight against inflation appears well underway. Earnings estimates for the S&P 500 in 2024 are in the low double digits and higher for US SMIDs (small and mid-cap companies),” FH maintains. As such, US SMIDs also look attractive from a valuation perspective, with the asset class continuing to trade at a historically large discount to US large-cap stocks. “If 2023 was dominated by the Magnificent 7, we believe 2024 could see further broadening to the benefit of a broader basket of stocks. However, some potential for volatility remains, so it is still important to have a bias towards quality to mitigate unexpected results,” warns Sherlock.