The New England Patriots won the Super Bowl by beating the Los Angeles Rams 13-3. That was the lowest score for a Super Bowl in the championship’s 53e-year history and the Patriot’s sixth Super Bowl victory, which ties the record with the Steelers.
There is a stock market indicator that you may hear about in the financial news known as the Super Bowl indicator.
The way that the Super Bowl indicator is supposed to work is that if a team from the NFC wins, the market will go up that year and if the team from the AFC wins, it should be a down year for the stock market. The indicator had an 85 percent accuracy rate from 1970-1997, but that has changed to about 48 percent since 1997.
In other words, correlation does not imply causation. Just because the indicator worked the majority of the time for so many years does not mean that the direction of the stock market is determined by the outcome of a championship football game. In recent years the result has been closer to 50 percent, or just about the same as a coin toss.
In statistics, the term, correlation does not imply or does not prove causation is used when there is a significant correlation between two sets of data, but there is no evidence that one causes the other. The Latin term for these types of logical fallacies is known as, “post hoc ergo propter hoc” which means, “after this, therefore because of this.” It’s fairly common for people to think that if two events occur frequently that one of them may be causing the other, when in fact they have no effect on one another.
Stock market jargon in the financial press is full of names like the Santa Claus Rally, January Effect, Sell in May and Go Away, the Super Bowl Indicator and others.
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Market performance is affected by the global economy. Corporate earnings are the number one driver of stock prices and of course, they are influenced by economic conditions. Corporate earnings have grown about 12.4 percent for the fourth quarter and the earnings reporting season is just about half way over with. That growth rate is expected to slow down in the first quarter of 2019 and earnings growth will have an affect on stock prices, but don’t worry about the Patriot’s victory, it won’t affect the market.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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