The Super Bowl as a financial oracle: Can it predict the markets?

Mark Sherlock, Head of US Equities at Federated Hermes

The Super Bowl indicator has gained ground as a predictor of the future direction of US equities. First proposed by sports journalist Leonard Koppett in 1978, the hypothesis is as follows: a Super Bowl victory by an American Conference (AFC) team predicts a bear market for the following year. Conversely, a victory by a National Conference (NFC) team predicts a bull market.

The Kansas City Chiefs (AFC) won the Super Bowl 2024 in overtime against the San Francisco 49ers (NFC) in the match held last night in Las Vegas. In theory, the victory of the Chiefs (winners of two consecutive championships) could indicate a fall in the stock market.

But, how accurate has this indicator been historically? Unfortunately for American football fans around the world, the answer is not that much. Although the indicator was never wrong at the time of Koppett's original thesis and during its early years, it has only "hit" six times in the last 20 Super Bowls (from 2004 to 2023).

As savvy investors would say, correlation and causality are two very different things. Although we will follow Super Bowl LVIII with interest (especially for its legendary halftime show), it will not keep us awake to know what it can tell us about future returns.

Our point of view

We note that 2024 has started with echoes of 2020. The same teams that competed for the 54th Super Bowl, the Kansas City Chiefs and the San Francisco 49ers, faced each other again on Sunday, February 11 and it seems more than likely that we will also have the same presidential candidates vying for the White House.

While some may look at the Super Bowl indicator to predict future S&P 500 returns, it should be noted that in all election years since the creation of the Russell 2500 index (small and medium-sized US companies), it has outperformed the S&P 500. Undoubtedly, this is a trend that we hope will continue and repeat in 2024.

Setting aside the Super Bowl or political victories or defeats, our outlook for the coming year remains largely the same: we are optimistic about the US equity markets and, in particular, about the prospects of small and medium-sized companies. The US economy, and especially the US consumer, continues to be in good health, and the Federal Reserve's fight against inflation seems well on track. Earnings estimates for the S&P 500 in 2024 are in the low double digits, and higher for US SMIDs.

US SMIDs also seem attractive from a valuation standpoint, and the asset class continues to trade at a historically large discount to large-cap US stocks.

If 2023 was dominated by the Magnificent Seven, we believe that 2024 could witness a further broadening in favor of a wider basket of stocks. However, there is still some potential for volatility, so it remains important to have a bias towards quality to mitigate unexpected outcomes.

Source: ESPN, Bloomberg, as of February 7, 2024.