Just after the NFL Super Bowl, a sporting friend of mine called to tell me that we should be going into a bear market. “Why is that?” I asked, even though I tend to be ‘overly bearish’ and was in complete agreement with him.
He went on to explain that in the years when the Super Bowl was won by a team from the American Football League, it was a bearish sign for the stock market. But if a team from the National Football League won it was a bullish sign.
My friend added that this Super Bowl theory has been right 29 times and wrong only 8 times, which seemed to lend it some weight. (Well to me at least, but I have grown tired of gurus and economists as you well know, so perhaps I’m all too willing to clutch at the straws offered.)
Another theory recently presented to me is the ‘presidential campaign’ one. This theory is a little more straightforward. It contends that the stock market goes up in a presidential election year.
Beginning in 1832, the Dow has averaged a 10.3% rise in pre- election years and a 7.1% rise in the actual election year. The year after? A 1.8% rise and midway through the four-year term, a 4.2% increase.
So, election years tend to be good for the market. Some say that this is due to the fact that the administration that wishes to get re-elected tends to toss around some economic incentives for the voting public (like tax cuts). The incentives are reflected in the markets.
An interesting theory. And, in fact, the markets were up considerably more than 10% last year – and up in the two months of the actual election year.
At PROFIT CONFIDENTIAL, we are suspect of any ‘fortune telling theories’. We like to take it one economy at a time, so to speak. Or is that one candidate at a time? Oh well…
If truth be told, yes, the markets are up for the year, but bear in mind it is only the middle of February. And yes, a team from the American Football League, the New England Patriots, won the super bowl…which is bearish. Hmm.
There you have it. Two indicators absolutely opposed to one another. The election is bullish and the other, the Super Bowl outcome, bearish. Which is it? To what theory should we ascribe?
It appears that both are right. The market has its strong bull supporters and its strong bear supporters this year. Here at PROFIT CONFIDENTIAL, we will stay away from theories and call it as we see it…a lot of sideways action. A tug of war, if you will.