This weekend, two big global events that have nothing to do with stock markets are taking place affecting the lives of billions of people worldwide. And even though they have nothing to do with stocks, these events might affect the performance of stock markets around the world for the rest of the year.
On Sunday, the Denver Broncos (from the western U.S. state of Colorado) and the Carolina Panthers (from North Carolina in the southeastern U.S.) will play in American football’s Super Bowl championship. Around one billion people will watch the game. Professional American football is divided into two conferences, the NFC (National Football Conference) and the AFC (American Football Conference). The Super Bowl is played between the winners of these two conferences.
Since 1967, 82 percent of the time the U.S. stock market has finished the year up, an NFC team (represented by the Carolina Panthers this year) has won And 76 percent of the time, the U.S. stock market has finished the year down after the AFC (the Denver Broncos are playing Sunday) won. The Super Bowl Indicator is on a seven-year streak of predicting the stock market’s outcome. So if you’re hoping for a good year for U.S. stocks, you should be cheering for the Panthers.
How does the Super Bowl Indicator work for Asian markets? Not very well. If you use the same method for the 28 years of data available for the MSCI Asia Pacific ex-Japan Index, it only has about a 50 percent accuracy rate.
The other big event this weekend – much bigger in Asia of course – is the Lunar New Year, or Spring Festival. This upcoming year will be the Year of the Monkey. Since Broncos and Panthers can (seemingly) predict what will happen to the U.S. market, can Monkeys, Dragons, Rabbits and Rats predict what will happen to Asian markets?
Based solely on the 12-year annual cycle of the zodiac, there are no definite answers. The relatively short lifetime of Asian stock markets means there have not been enough data points to accurately measure how the markets perform for each animal. Asian markets would need at least 100 years of returns to have more conclusive results.
But, the same animals that make up the Chinese zodiac are also used to represent individual months. For example, the first month of the lunar calendar (which is made up mostly of February on the Gregorian calendar), has the tiger for a symbol, the second month is the rabbit, the third a dragon, and so forth. Using months gives a much larger pool of market statistics to draw from to see which animal is best for Asian markets.
Based on monthly statistics, the month of the rat (mostly December, plus a bit of January) is the best month for Asian markets. Over the past 28 years, during the month of the rat the MSCI Asia ex-Japan Index has been up 75 percent of the time, with an average monthly return of 1.9 percent. The worst month belongs to the monkey (mostly August, part of September), with a 55 percent chance markets will be down. The month of the tiger (most of February, part of March) has the highest average return, but lower odds of it happening.
There’s no scientific basis for the Super Bowl Predictor, or for the predictive powers of the Chinese zodiac. There’s also no basis for the January barometer, but it also seems to work (better for U.S. markets). In investing, the past has no bearing on the present. But historical indicators like this can give some guidance about what markets have done before.