Editors' pick: Originally published Feb. 2.
What would you pay for an indicator that predicts the annual direction of the stock market with 76% accuracy? Most market pundits could only hope to be correct on the direction of the market over three-quarters of the time. Yet remarkably, the Super Bowl Indicator of the Stock Market has done just that over the past 50 years.
The Super Bowl Indicator was originally proposed somewhat tongue in cheek by New York Times sportswriter Leonard Koppett in 1978. While legend has it that the theory was memorialized in a New York Times article, no one has been able to locate it. The phenomenon was the subject of a 1978 column in, of all places, The Sporting News entitled "Carrying Statistics to Extremes." Every year, around this time of year, the Super Bowl Theory of the Stock Market is revisited.
What Koppett observed was that in 10 out of the 11 years the direction of the Dow Jones Industrial Average was "predicted" by the outcome of the Super Bowl. Specifically, if an old (pre-merger) NFL team won the Super Bowl the market closed up for the year and if an old AFL team won the Super Bowl, the market closed down for the year. When Koppett first proposed this relationship, the only time that it wasn't consistent was in 1970 when the Kansas City Chiefs won the Super Bowl and the Dow advanced a scant 4.8%.
Now, not only has the Super Bowl Indicator consistently "predicted" the direction of the market, but the average returns when the old NFL wins and when the AFL wins are dramatically different. The Dow has averaged a healthy 11.4% return in years when the old NFL wins and has declined by an average of 0.85% in years when the old AFL prevailed.
Now, pre-merger is important to note. The Pittsburgh Steelers are an old NFL team that won six Super Bowls after migrating to the American Football Conference when the NFL and AFL merged in 1970, and the market has advanced all six of those years by an average of 18.4%. Mr. Market is clearly a Steelers fan.