Most experts agree that the stock market’s direction is determined by fundamentals. Strong earnings, usually accompanied by strong economic growth, translate into strong stock prices.
But there are some market commentators who see everything from election results to the time of year as an indicator of where stock prices are headed.
Some market mavens have even posited that the direction of stock prices is revealed by which conference’s team wins the Super Bowl.
On Oct. 28, another major sports championship begins, the World Series. The Philadelphia Phillies will face the Houston Astros. And Phillies fans should be careful what they wish for.
Actually, that was a joke. But if you look at the years when Philadelphia teams won the World Series – the Athletics in 1929 and the Phillies in 1980 and 2008 – they all were in or near periods of substantial economic and stock-market weakness.
Clearly the World Series results had no impact on the economy or stock markets in those years or almost surely in any others. So you can root for the Phillies with a clean conscience.
Elections Have an Impact on Stocks
To be sure, some unexpected factors may affect stocks.
“The correlation between stock market performance and mid-term elections is well documented,” according to securities brokerage Charles Schwab.
“In 17 of the 19 mid-terms since 1946, the market performed better in the six months following an election than it did in the six months leading up to it.”
That makes some sense, as the completion of elections eliminates the downward pressure on stocks from political uncertainty before the election.
However, this year is different than past years in the buildup to mid-term elections, Schwab notes. In 2022, the market has dropped ahead of mid-terms, while in years past it was stable to a bit higher before mid-terms.
The Effect of Government Spending
"Post-election outperformance is often driven by the market's expectation of increased government spending from a new Congress," says Liz Ann Sonders, Schwab's chief investment strategist.
"But an additional infusion of funds seems unlikely this year, given the government's historic levels of spending and stimulus in response to the pandemic."
Indeed that spending and stimulus have played a role in inflation’s surge to 40-year highs.
"The combination of high inflation, the war in Ukraine, and a lingering pandemic has already made this cycle unlike prior mid-term years," Sonders says. "With so many other forces at play in the market, I wouldn't put much weight in historical mid-term-year performance."
As for the Super Bowl, the stock market generally rises if an NFC team wins and falls if an AFC team wins. This indicator has been right 75% of the time for all the Super Bowls through 2021. But it was wrong in 2016-20.
And does any rational stock-market watcher seriously believe that the Super Bowl or World Series has any significant effect on stocks?
