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06 February 2012
January and Super Bowl Effects
By: Andy Reynolds, MBA
In an era where information is abundant, investors and analysts alike are constantly looking for the next predictor of an economic shift or stock market movement. Over the years, several concepts have been explored with painful research. With the Super Bowl yesterday and the end of January last week, I thought it would be enjoyable to share two “predictors” (if you can call them that) that people have researched over the years.
The first barometer of predicting the yearly market returns is referred to as the “January Effect”. This barometer states that as the S&P 500 goes in January, so goes the year. While this is definitely not a fundamental to base financial decisions on, it has surprisingly been fairly accurate. The market predictor has been correct 89% of the time since 1950. This is a fun bit of trivia and optimistic news (January 2012 concluded with the S&P 500 returning +4% gains) but it is far from an economic theory to base financial decisions.
A second stock market barometer that is very timely is referred to as the “Super Bowl Indicator”. While most would never think to try to demonstrate a correlation (not causation) between the Super Bowl and the stock markets, there has actually been a strong positive connection over the years. The theory indicates that a triumphant team from the old American Football League “AFC” foreshadows a negative market for that calendar year, while a winner from the old NFL “NFC” predicts a positive market for the calendar year. Far from fundamentals, huh? While making the connection is farfetched, the Super Bowl Indicator has also realized a strong connection, being accurate 80% of the time. With the Giants winning last night, this is positive news for the upcoming year if you are superstitious.
Knowing these “economic predictors” are available, I share them solely for entertainment purposes and they are not even slightly considered in our analyses. To stay updated with the latest information, however, last week John and I attended an Economic Outlook Conference hosted by the University of Kentucky featuring Dr. Mark Schweitzer, Senior Vice President of the Federal Reserve Bank of Cleveland. The conversation was a candid portrayal of the state of the economy, stripped away from comments trying to achieve media airtime or political positioning. The thoughts reaffirmed our beliefs in the market, economy, and upcoming forecasts.
The most significant takeaways from the presentation demonstrated the data surrounding economic output and employment. Economic output has continued to grow within our borders, albeit at a slower rate than most of us desire. If you look back at 2007 output, most regions have reached or surpassed pre-recession levels. Sure, nobody desires growth to be similar to or slightly above a level from five years prior – however, knowing the short-term history of our economy, it is a welcomed achievement.
This growth is also being achieved with less in the work force. In the Central Kentucky area alone, output per worker has increased 5% from 2006 to 2010. What does this mean? Employers are making more products and earning more profits with fewer employees – a challenge for the job markets and for less skilled employees.
As a reminder, on February 16th, we will be hosting our Forecast event at the Bonne Center. We plan to cover several different topics, that are more valid than the January and Super Bowl predictors. If you have not yet confirmed your reservation, please RSVP with Christine McCabe at 859-226-0625 or respond directly to this email.
