Here’s Why the Super Bowl Indicator Works
After spending 30 years in the financial markets, I’ve learned that there are no guarantees except this one: As the Super Bowl approaches, the financial media will frequently mention “the Super Bowl indicator.”
I’m mentioning it too, but I’m doing something different. I’ll explain why it works.
This idea has been around since the 1970s and says if a team from the American Football Conference (AFC) wins, the stock market will decline for the rest of the year. When a team from the National Football Conference (NFC) wins, stocks tend to end the year higher.
The S&P 500 Index has performed better, and posted positive gains with greater frequency, over the past 53 Super Bowl games when NFC teams have won.
This indicator has been right 78.6% of the time when an NFC team wins.
Source: LPL Research [1]
Today, I’ll reveal why the Super Bowl indicator has such a great track record…
Old vs. New
The Super Bowl indicator works because it’s actually an economic indicator.
The NFL was organized in 1920 with teams located in Cleveland, Detroit, Rochester, Chicago and other cities in the part of the country we now call the Rust Belt. Over the years, the league expanded to include cities beyond the Midwest, but it remained centered in that part of the country.
Source: billssportsmaps.com [2]
This led to the formation of the American Football League (AFL). Team names such as the New York Titans and San Diego Chargers reflected the ambitions of their owners. Other team names, such as the Houston Oilers, reflected their source of wealth.
Source: billssportsmaps.com [3]
When the NFL began, Miami was considered a tropical paradise and the center of a real estate bubble. It had become a stable source of wealth by the 1950s and had come to symbolize the strength of the New America economy.
New money in California created rivalries with nearby cities, and the Oakland Raiders and San Diego Chargers began playing next door to more-established teams.
This sums up the state of affairs at that time. The older NFL was based in cities that formed the backbone of the economy before World War II. The newer AFL teams sprung up in cities that represented the New America economy.
By the 1960s, the NFL-AFL rivalry came down to old money versus new money. This was also a struggle between the economy of the Old America, which was based on industry, and the New America economy, which was based largely on oil and technology.
The two leagues eventually merged, with most of the NFL becoming the NFC, and the AFL and several NFL teams becoming the AFC.
Cities of Champions
Teams’ fortunes, to some degree, are tied to the economic strength of their host cities. Fans in a city mired in recession won’t be able to attend as many games and will spend less at the concession stands. Owners of these teams will have less money to spend on the team and may be unable to compete for the best players.
When an NFC team wins the Super Bowl, it shows that owners in the Rust Belt or other areas associated with the Old America could assemble a winning team because the fans had money to spend. Victory by an AFC team shows the economy of the New America is doing better than the economy of the Old America.
The Dow Jones Industrial Average and most major market averages reflect the Old America economy. When an NFC team wins, the averages rise because the industrial center of America is thriving.
When an AFC team wins, economic growth is centered in sectors like technology, and that’s not guaranteed to boost the major market averages or even the whole country.
This all means there is a simple explanation for the widely panned Super Bowl indicator. The stock market reflects the core of the economy, and the success of a football team reflects the economy of its home city. It’s as simple as that.
Regards,
Editor, Peak Velocity Trader
Sources:
[1] 49ers Or Chiefs? — https://lplresearch.com/2020/01/31/49ers-or-chiefs/ [2] National Football League — http://billsportsmaps.com/wp-content/uploads/2013/09/nfl_1966_k.gif [3] American Football League — http://billsportsmaps.com/wp-content/uploads/2011/11/afl_1966_d.gif
After spending nearly 20 years developing pattern recognition software for the United States Air Force, I retired from my military career in 2005. My plan was to utilize the same pattern recognition principals I used in the military and apply them to the largest and most lucrative market in the world: the stock market.
