The future can be a murky place. And let’s face it, anyone in the investment business is always on the lookout for that crystal ball. When investors take a flight of fancy and start mining data for arcane and offbeat ways to predict the economy and the markets, there’s no telling where they will end up. With our attention focused on the Olympics, we thought we would explore what impact the summer games might have for stock investors. It’s not so farfetched to think that a swelling of national pride after a stellar Olympic performance might translate to greater confidence, optimism and positive expectations, expanding P/E ratios and attractive investment returns. But the Olympics are far from the only televised entertainment that can teach us a thing or two about the market.
Dancing with the Stars
First, let’s look to the heavens. There are an astounding number of websites, blogs and investment pundits who use astrology to analyze and predict stock market patterns. This approach is taken quite seriously by many global investors, whose philosophy may include a more contemporary reference to astrological factors than mainstream western thought. One website, http://money.rediff.com/tools/astrology, specifically relates stock and financial markets to far eastern astrology; while another, http://astrologyandthemarkets.blogspot.com, offers neophytes some online instruction in financial astrology as well.
Monday Night Football
The Super Bowl indicator is based on results from the old AFL and NFL teams. The numbers suggested that a win from an AFL (now AFC) team would foretell a decline in the stock market for the year ahead, and a win from an NFC team would mean the opposite: a positive year. In the 22 years the NFC has won the Super Bowl, the S&P 500 has gained an average of 15 percent. In the 21 years the AFC has won, the average return has been 7 percent. According to Investopedia, the indicator has an over 80 percent accuracy rate, but was profoundly wrong in 2008 when, despite a win by the New York Giants, the market had one of its worst years since the Great Depression.
This is a presidential election year, and election years, at least since 1939, have been pretty good times to be in the market. In fact, between 1939 and 2008, the Dow never posted a loss during an election year. The best election year performance was back in 1928 when Herbert Hoover swept into office; that year, the market shot up 48.2 percent. The worst, in 2008, saw a decline of 33.8 percent.
Do long legs lead to better stock markets? So says the “hemline indicator.” When skirts get longer it’s time to sell, according to this approach, and when stock markets are good, skirts tends to rise. This has some basis in historical fact, although it may be more of a contrarian indicator, since by the time hemlines have climbed and times are good, investors may want to consider selling. Alas, hemlines can’t rise forever.
Leonard Lauder, the late chairman of Estee Lauder, noticed that when the economy was poor, women treated themselves to small and relatively inexpensive indulgences such as new lipstick. Rising lipstick sales, in fact, are often a precursor of more challenging economic times ahead. According to Investopedia, in the months following Sept. 11, 2001, the sale of lipstick in the U.S. nearly doubled.
Now, consider the Olympics indicator. From 1980 through 1996 (five summer Olympics games) the Dow gained during every Olympics game period. Since 2000, however, (three games) the index has fallen twice and gained only once. In the 12 months following the six summer Olympics games since 1988, the Dow gained 26.9 percent after 1988 (through Dec. 30 of the following year,) 4.3 percent after 1992, 46.9 percent after 1996, and 4.5 percent after 2004. It declined twice, after the Sydney games in 2000, losing 1.6 percent and following Beijing in 2008, dropping 19 percent. Moreover, in these six Olympics competitions the U.S. took the most medals in all but two years, 1988 and 1992. Since 1988, the U.S. gained the most gold medals in three of six years, and the markets have gained in two of the three, 1996 and 2004, and fallen in one year, 2000.
As of Aug. 8, 2012 the U.S. is leading in total medals, trailing China in gold medals by two, and the Dow is up 1.4 percent month to date. M
Steven Weber, Gloria Harris, and Frank Weber are the investment and client services team for The Bedminster Group, providing investment management, estate, and financial planning services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. The opinions expressed are solely those of the authors and do not necessarily reflect those from any other source.