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The Super Bowl Strategy

01/21/04 04:13:45 PM PST
by David Penn

Does the winner of the Super Bowl determine a bullish or bearish market for the year that follows?

The short answer to that question is: Of course not, silly! But there is something to the strange relationship between the Super Bowl winner and the stock market. Of all of the market timing traditions — the Santa Claus rally, the sell-in-May-and-go-away conventional wisdom, the January effect, the buy-into-holidays and sell-out-of-holidays method — one of the most entertaining has been the one that rolls around every year about this time, a market timing myth I'll call the Super Bowl strategy.

Like most market timing myths, the Super Bowl strategy is attractive in large part because of its simplicity. The "theory" is that years in which the Super Bowl winner comes from the National Football Conference tend to be up years in the stock market. Conversely, years in which the Super Bowl winner comes from the American Football Conference tend to be down years. Sounds simple, right? Or is it just simply stupid?

Maybe so, but over the past 37 years of Super Bowl contests there have been no more than 10 years in which this odd pattern did not hold true. Looking at both the Standard & Poor's 500 as well as the Dow Jones industrials, a review going back to the first Super Bowl in 1967, there have been 10 exceptions to the rule with regard to the S&P 500 and only nine exceptions when the Dow Jones industrials are used as the market proxy. This translates into a winning percentage of 73% and 76%, respectively. Not. Too. Shabby. And this is without employing the usual caveats provided by partisans of the Super Bowl strategy, caveats that point out that if you consider the winning Super Bowl team's original conference assignment — instead of simply the conference the team belonged to when it won the Super Bowl — the winning percentage for the Super Bowl strategy is even higher.

THE PIGSKIN PLAY

Followers of the Super Bowl strategy are enjoying a three-year winning streak. In 2003, the Tampa Bay Buccaneers won the NFC championship and went on to win the Super Bowl against the AFC champion Oakland Raiders. It goes without saying that 2003 was a good year for both the S&P 500 and the Dow Jones industrials (both up approximately 25%). The previous two years, 2002 and 2001, were very difficult years in the market, with the S&P 500 down 23% in 2002 and 13% in 2001, and the Dow Jones down 17% in 2002 and 6% in 2001. Who won the Super Bowls in years 2002 and 2001? In 2002, the winner was the surprising underdog New England Patriots of the AFC. And the 2001 winner? The Baltimore Ravens, also from the American Football Conference.

The three years previous to these, however, were not kind to the Super Bowl strategy. The year 2000 was a down year, yet the AFC champion Tennessee Titans fell a few yards short of beating the NFC champion St. Louis Rams in Super Bowl XXXV. And both 1999 and 1998 — truly thrilling years to the upside in the markets — saw the AFC champion Denver Broncos win two Super Bowls in a row.

Looking at the Super Bowl strategy overall, the 1990s were a great decade for stocks and, as the Super Bowl strategy would suggest, it was also a great year for NFC teams competing for the Super Bowl trophy. From 1990 to 1999, NFC teams won the Super Bowl eight times compared to only two wins for the AFC (the aforementioned back-to-back wins by the Denver Broncos).

The 1980s were only a slightly worse decade for stocks than were the 1990s, and guess what? It was only a slightly worse decade for the NFC than the 1990s; the NFC won the championship seven times in the 1980s compared to three victories for the AFC. The 1970s, a period during which the stock markets were mired in a secular bear market, were great for the AFC, which won seven out of the 10 Super Bowls played in that decade. Whether or not the Super Bowl strategy is pure myth, it is a performance record like this that makes it easy for many to put just a little faith in the anticipatory power of the NFL's championship game — even if they know, deep down, that it's just a game.

ARE YOU READY FOR SOME FOOTBALL?

How does the 2004 Super Bowl factor into the Super Bowl strategy? As of this writing (January 16), four teams will be vying for a shot at the championship game: the New England Patriots and Indianapolis Colts from the AFC, and the Philadelphia Eagles and Carolina Panthers from the NFC. For most of the season, the conventional wisdom has pointed out the relative weakness of the NFC compared to the AFC. The statistics bear this out slightly: the NFC had a 30-34 record against the AFC in 2003, and the average winning percentage of NFC playoff teams is .677 compared to .740 for AFC playoff teams.

Vegas oddsmakers have given the AFC New England Patriots the best odds of winning the Super Bowl at 3-to-2. This calculates to approximately a 40% chance (3+2 divided by 2; then divide 100 by that number to get the percentage; thus 3+2 = 5, 5/2 = 2.5, 100/2.5 = 40). The AFC Indianapolis Colts are enjoying 5-to-2 odds, or a 29% shot at winning the Super Bowl. The NFC Philadelphia Eagles are slightly longer odds at 3-to-1, or a 25% chance, with the NFC Carolina Panthers coming in as the long shot of the four: 6-to-1 odds, or a 14% chance.

What does this suggest? This year, the smart money appears to be with the AFC, particularly with the 2002 Super Bowl champion New England Patriots — who do enjoy home field advantage in their AFC championship game. And if the smart money is right about New England, we can only wonder whether the Super Bowl strategy will end up being right in anticipating a resumption of the bear market, and a down year in 2004.

David Penn may be reached at DPenn@Traders.com.

Current and past articles from Working Money, The Investors' Magazine, can be found at Working-Money.com.





David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

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