Women and men alike can appreciate the enthusiastic and inspirational wisdom of Coach Lou Holtz. Our firm invited the legendary college football Coach Holtz to speak at a conference several years ago. He was delightfully entertaining and also made a strong impression on many of us in attendance.
The parallels Lou Holtz draws between business, life and the football field are quite poignant. As he says; “Your talent determines what you can do. Your motivation determines how much are willing to do. Your attitude determines how well you do it.” Next time you’re looking for a good read, I recommend picking up any of his books.
Football predictions and market forecasting are at the same time and an art and a science. There are numerous scientific and mathematical models designed to “predict” the market, and because today is Super Bowl Sunday and The SBI (Super Bowl Index) is one of the better known market indicators, I thought we’d take a look at it, as well as a few others.
Bulls, Bears, Colts and Saints
There’s a 43-year history of “stats,” showing that who wins the Super Bowl can correctly predict the direction of the market 77 percent of the time. This Super Bowl Index (SBI) theory states that if an AFC team wins, then the stock market will drop during the upcoming year and conversely, if an NFC team wins, the stock market will be up for the year.
But just to confuse the issue, the NFL went through some changes back in 1970 when the NFC merged with the AFL. According to my sources, original NFL teams that switched to the AFC when the AFL and NFL merged include the Steelers, the Colts and the Browns. So we’re not quite sure what will happen this year if the Colts win; hopefully, it will be good news either way.
There’s another theory on the relationship between the stock market and the Super Bowl, stating that if the Dow Jones Industrial Average (an unmanaged index of 30 widely held stocks) rises from November until Super Bowl Sunday then the team whose full name appears later in the alphabet will win. I am writing this on Wednesday, Feb. 2, 2010 and at the moment, the Dow is at 10,264; down from its close of 10,343 on Nov. 30, 2009, which implies that the Saints will win. Let’s see how this theory holds up.
Another forecasting tool is the “January Effect.” This concept simply proposes that in general, stocks will rise in January. The rational here is that investors will sell stock in December to realize tax losses to offset their capital gains, and this pushes prices down. The cash generated by this and a resulting drop in the market lures investors back into the market come January, leading prices upward.
Another interesting market predictor is the lipstick effect. This theory presumes that when lipstick sales increase (which is apparently considered to be a mood- and mind-altering experience for women!) the market will face rough roads ahead. Supposedly, women make these small purchases to enhance their mood during desperate economic times. Don’t laugh; lipstick sales were up 40 percent during the last quarter of 2008.
For the record, the Dow Jones Industrial Average closed the last trading day in January at 10,067.33, down 3.5 percent for the month. The NASDAQ Composite (an unmanaged index of common stocks listed on the NASDAQ National Stock Market) finished January at 2,147.35, down 5.4 percent for the month, and the S&P 500 (an unmanaged index of 500 widely held stocks) closed at 1,073.87, down 3.7 percent for the first month of the new year.
As the month ended, gross domestic product (GDP) calculated for the fourth quarter of 2009 showed a seasonally adjusted annual growth rate of 5.7 percent, Federal Reserve Chairman Ben Bernanke won confirmation to a second four-year term and the Reuters/University of Michigan consumer sentiment index rose to 74.4, its highest level since January 2008. Yet, the major financial market indices finished the month below their 2009 closing figures.
In fact, for much of January, the indices floated well above their December closes. But, as the month ended, the economic pot was stirred. Bernanke’s reappointment suddenly seemed doubtful; politicians railed about various aspects of the banking industry, and home sales and mortgage application figures dipped. Volatility – mild in comparison to the wild swings of 2008 – returned as the Dow dropped 213 points on January 21, its worst single-day decline in nearly three months.
Nevertheless, underlying the current turmoil, the prevalent idea is that the economy is, in fact, slowly improving. The GDP figure, with a strong increase in capital spending, showed its best quarterly growth since late 2003. And consumer sentiment – an important indicator for an economy that is 70 percent based on consumer spending – is at its highest level in two years.
While it isn’t advisable to base your investment strategies on football games or lipstick sales, no one knows exactly where the markets are going in 2010, but investment opportunities do exist. Whether you stay in the game or spend some time on the sidelines, it’s equally important to work with a “financial coach” and assemble a superior team of qualified, trusted financial professionals who have your best interest in mind.
Past performance is not indicative of future results. Investors cannot invest directly in an index. Investing involves risk and investors may incur a profit or a loss.
Darcie Guerin, financial advisor and branch manager, Raymond James & Associates, Inc. 606 Bald Eagle Drive, Suite 401, Marco Island, FL 34145, provides this article. Gulfshore Life magazine named Guerin as one of the Best Personal Wealth Managers in the Southwest Florida area for 2009. If you have questions, e-mail her at Darcie.Guerin@RaymondJames.com or call 389-1041, toll free (866) 343-0882 or visit RaymondJames.com/Darcie. Past performance may not be indicative of future results.