Streetwise: Groundhog Day and Super Bowl views of the stock market
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The rampant discourse over the nation's economic future took a back seat to some more important forecasts recently as fractious factions face off over whom has the superior groundhog on Groundhog Day.
Selected members of Marmota monax are yanked out of their comfortable dens to view their shadows, the purpose of being to predict the weather six weeks into the future. Staten Island Chuck was up against the powerful PR machine of Punxsutawney Phil and his 128th annual forecast. Not to be outdone, General Beauregard Lee of Georgia, who holds "honorary doctorates" from the University of Georgia and Georgia State in "Weather Prognostication," has to deal with Sir Walter Wally of North Carolina.
By way of full disclosure, the fine folks at the University of Georgia tersely informed me a couple of years ago that an honorary degree was serious business. They said I should not have added credence to the idea that academic recognition of such magnitude had actually been bestowed by a hallowed university on a groundhog. Therefore, let me make it clear; I did not mean to imply that Beauregard had actually been awarded such an honor. After all, it was not on his Curriculum vitae.
Given the level of expertise most groundhogs have with the English language, not to mention meteorology, there is probably some doubt as to scientific strength of this forecasting approach.
Unfortunately, many of Wall Street's prognosticators are in the same league as your local groundhog.
For example, some promulgate with full sincerity the idea that the Super Bowl can forecast the stock market, meaning that at least two of three major market indices will rise when an original NFL team wins. However, if a team from the original AFL wins, at least two indices from among the Dow Jones industrial average, the S&P 500 index and the NYSE composite index are headed downward.
Luckily, this year it is a "heads I win, tails I win" situation because both the San Francisco 49ers and the Baltimore Ravens can trace their roots back to the original National Football League.
From 1967, the year Green Bay (NFL) won the first Super Bowl, through 1989, when the San Francisco 49ers (NFL) won, the market was up after 16 old NFL teams won, and down six of seven times after old AFL teams prevailed. The only time the indicator failed was after the Oakland Raiders won in 1984, and that year the S&P 500 rose just 1.4 percent.
Despite being right about 80 percent of the time overall, when the Giants beat the Patriots (17-14) in 2008 the S&P careened downward by 38.49 percent and the financial crisis was off and running.
Yet, there is a modicum of statistical data that correlates market aberrations with certain calendar events. For example, the so-called January effect, where stock prices supposedly increase during the month of January.
Sporting an accuracy rate of almost 90 percent, the recurrent nature of this anomaly suggests that the markets are not efficient. The definition of market efficiency is that such phenomenon should not exist. Hmm ... the Dow was up 6.2 percent in January, the S&P was up 5.3 percent and the Nasdaq 4 percent.
Before you start placing trades, consider that 20 years ago David Leinweber, a visiting economist at Caltech, determined that butter production in Bangladesh had a statistically significant correlation (an r-squared of 99 percent) with the S&P 500 index. And he still receives requests for current butter production numbers.
First Published February 3, 2013 12:00 am