Revenue, earnings, cash flow, GDP growth, jobs data … who needs that?
These days, it’s all about what President Trump says, signs and tweets that gets Wall Street traders buying and selling.
Yet despite the laser-like focus on the administration’s policy rumblings, there are still all sorts of ways to try and game this market.
Some are grounded in seemingly relevant data — consumer confidence, investor sentiment indices, etc. — while others are seemingly disconnected from markets.
And some are just downright bizarre.
Case in point is the timeliest of weird market indicators, the so-called “Super Bowl Indicator.”
With the big game this Sunday, it reminded me that the Super Bowl Indicator actually has a really strong track record of predicting how the market turns out in any given year.
In fact, the Super Bowl Indicator is correct about 76% of the time.
Getting three out of four right regarding anything pertaining to markets is pretty strong, and at the very least it deserves a little further inquiry.
Other indicators, however, are just kind of fun to ponder.
The Super Bowl Indicator evolved from an attempt to prove the absurdity of false statistical correlation. That attempt was made by New York Times sportswriter Leonard Koppett in 1978.
Koppett noticed that, in 10 out of 11 years, the direction of the Dow Jones Industrial Average was “predicted” by the which team won the Super Bowl.
If a pre-merger NFL team won the game, the market closed higher for the year. If an old AFL team won (now the AFC), the market closed the year in the red.
So if you don’t have a dog in this fight and you want the markets to go up, you may want to cheer on the Falcons!
Per an article at TheStreet.com:
Looking at history, there is a 70% probability that an old NFL team wins the Super Bowl and there is a 74% chance that the market rises in a year. Given these probabilities, by simple chance the Super Bowl Indicator should be correct about 60% of the time.
This kind of correlation between seemingly unrelated statistics is fun to talk about. But it’s certainly never anything to actually base your investments on.
In fact, this is a symptom of what all-too-many people do in much subtler (and usually much more destructive) ways. That is, to confuse correlation with causation.
So, if you stub your toe on your way to work. And later that day you close a big deal. Does that mean stubbing your toe had anything to do with your successful business deal?
Of course not.
While the Super Bowl Indicator might be right more times than it’s wrong, statistically, it’s all about correlation over causation.
Now, what about some of the other weird indicators people use to game the markets and the economy?
Interestingly, there is no shortage of really strange ones.
Check out some of the indicators I find most humorous, as well as the most interesting:
The Drudge Report Indicator. The more stories about business on the salacious aggregators’ site, the closer we are to a market that’s bottomed.
The Plastic Surgery Index. The more money spent on elective medical procedures such as plastic surgery, the closer we are to a top in the economy. Conversely, people pullback on plastic surgery spending as the economy is perceived to be weakening.
The High Heel Index. As the economy falters, women’s high heels tend to get higher. Conversely, during boom times, women’s shoes tend to get lower, including all the way down to flats.
The Sports Illustrated Swim Suit Index. If the woman chosen for the cover of the best-selling annual issue is American, then U.S. markets will outperform international markets. If a non-American gets the cover, U.S. markets will underperform.
Traders have another unusual indicator that they haven’t quite settled on a name for yet. Some call it the Pull-Up Predictor. They watch for Kimberly-Clark Corp.’s (KMB) sales volumes, specifically Huggies diapers vs. Pull-Ups training pants. If parents are buying the pricier Pull-Ups, that’s supposed to be a positive signal for the economy.
Like any seemingly disparate and/or tangentially related indicators of this sort, they are right some of the time … and wrong other times.
And like all these indicators, the results are much more a case of correlation than causation.
So, the next time you hear about some strange statistic that seemingly relates to some fact of reality … keep in mind the correlation/causation paradigm.
I suspect it will serve you well when sifting out truth from fiction.
What do you think about the Super Bowl Indicator and other bizarre market metrics? Is there any real truth to them, or is it more a case of coincidence over correlation? Let me know what you think leaving me a comment on our website or by sending me an e-mail.
The final jobs report of the Obama administration gave an early boost to stocks today. The data for the headline number (+227,000 jobs in January) is calculated through the 12th of each month. The broader markets celebrated their best day of the year today (Monday was the worst), with the Dow up 0.9%, the S&P 500 up 0.7% and the Nasdaq up 0.5%.
• For the history buffs: Today’s jobs data marks 76 months of job-creation and an unemployment rate of 4.8%, down from 8.3% when President Obama took office. Obama’s economy added 11.5 million jobs, fourth after Presidents Clinton (22.9 million), Reagan (16.1 million) and Johnson (12.2 million). (Hamilton Place Strategies)
• Not the best day of the year for Amazon (AMZN): Shares fell 3.5% after the company’s holiday sales revenue came up shorter than expectations and its forward guidance wasn’t as robust as traders wanted to hear.
• Crude oil gained 0.5% after President Trump issued sanctions against Iran after a ballistic missile test. The sanctions focus on 25 individuals and entities that serve as suppliers to the missile program.
• Tokyo goes for the recycled gold: Organizers of the 2020 Tokyo Olympics are on the hunt for eight tons of gold, silver and bronze, with which they plan to make 5,000 medals for the Olympics and Paralympics. That includes seeking donations of old smartphones and appliances, which involves the public in the event and helps the environment.
• India’s gold demand may have fallen 21% in 2016, but the price keeps climbing. The yellow metal gained 0.1% today to end at $1,220.80. Fewer millennials are said to be buying gold, and gold recycling grew 12% last year. But with wedding season coming up again, most expect that renewed buying interest will help India keep its title as the world’s biggest gold buyer.
• Made in Bangalore: Production is set to start in late April for Apple (AAPL) to make iPhones in India. Taiwan-based Wistron will reportedly assemble the phones for India’s domestic market.
• Is your Super Bowl swag officially licensed by the NFL?: The feds seized $1.4 billion in counterfeit jerseys, hats, jackets and other souvenirs over the last year from flea markets, stadium parking lots and online vendors like Amazon and eBay. The sales of unlicensed items isn’t limited to the NFL; other sports as well as other countries are struggling with the same problem.
Good luck and happy investing,
Uncommon Wisdom Daily