The Superbowl Factor

The Florida recount of presidential votes has the country divided into two partisan camps, and as a result, stocks are bouncing up and down much like the legal ball between the Bush and Gore camps. For example, Bush and Gore asked the Florida Supreme Court to decide how to handle recounting the Florida votes. Stocks reacted positively to the news of Supreme Court intervention. At the close of business on November 14, the Russell 1000^� Index¹, closed up at 2.58 after weeks of sagging returns and the Russell 2500^TM Index² closed up at 2.25. But stock prices slumped downward as the legal battles continued to wage.

So what’s the correlation between today’s current events and the performance of the financial markets? For insight into this question, there’s the Superbowl factor that rears its head each January.

Although there is no actual correlation between football games and the stock market, according to Ron Hill, a writer for an online newsletter entitled Intellectual Capital.com, in years when the winning team in the Super Bowl is from the old National Football League, the market has advanced. In years when a former American Football League team wins, the market declined. Hill states that this indicator has successfully forecasted the direction of the market in 27 of the last 31 years, an 87% accuracy rate.

Unlike football games, politics do affect markets. Taxes, government spending, the regulatory environment, and deficits have huge, long-term impacts on companies and consequently, financial markets. Historically, in a presidential election year, stock prices tend to go up right before an election. For example, for the time period of 1928-1992, the S&P 500 Index³ had an average rate of return during the three months prior to a presidential election of 4.59%. In non election years, the average return of the S&P for the months of August, September, October, between the time period 1928 and 1995, was –0.23%.

The bottom line message to investors: When it comes to retirement investing, eight years, the longest a president can remain in office, is a relatively small time period when you consider a 30-year time horizon to invest for retirement. So regardless of who ends up residing in the Oval Office come January, if you’re long-term investor, stay put.

¹ Russell 1000� Index: An index of 1,000 issues representative of the US large capitalization securities market.

² Russell 2500^TM Index: Measures the performance of the 2,500 smallest companies in the Russell 3000� Index.

³ S&P 500 Stock Index: An index, with dividends reinvested, of 500 issues representative of the US large capitalization securities market.

Past performance is not a guarantee of future results.

This is a publication of Frank Russell Company. It should not be construed as investment, legal, or tax advice. The contents are intended for general information purposes only, and you are urged to consult your own investment, legal, or tax advisor concerning your own situation and any specific investment questions you may have. For further information about these contents, please contact Frank Russell Company. Frank Russell Company, a Washington, USA, corporation, operates through subsidiaries worldwide.

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