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Strategic Insights

Volume 6, Edition 5 | January 30 - February 3, 2016

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Super-stitious Investing

Doug_Walters Doug Walters | Articles

Read Time: 6:00 min

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U.S. stocks ended the week on a high note, but only managed to offset losses from earlier in the week. With the Super Bowl on Sunday, we note that the outcome may have implications for (superstitious) investors.

Market Review

Contributed by Doug Walters

Monday’s declines in U.S. equities were matched by Friday’s rally, leaving stocks close to flat on the week. With the Super Bowl poised to garner attention this weekend, we take a look at what that could mean for the stock market.

Root for the underdog

Data hounds are always looking for spurious relationships to the stock market and they have found one in an unlikely place, the Super Bowl. The claim is: if an NFC team wins, the stock market will rise in the coming year, while if an AFC wins, stocks will fall. There is no academic grounding to this, yet surprisingly, this indicator has been right 80% of the time in the past 50 years.

  • As data hounds ourselves, we could not help but dig into this a little further. What we found is that the market went up 86% of the time when an NFC team won, yet only 36% of the time for an AFC win. For comparison, we looked at 90 years of data and found that the market generally rises 67% of the time over a 12-month period.
  • Tom Brady and the Patriots (AFC) have won the Super Bowl four times over the past 15 years… three of those years, the market was down. Sorry Patriot fans, but for the good of your portfolio, you need root against them.

Picking a winner

Going forward, you are unlikely to succeed by adopting the Super Bowl as an indicator for your investment strategy. Yet, there is a bigger takeaway in the above data: in any given year, U.S. equities have historically had a 67% chance of rising.

  • We have been fielding many concerns about equities given the uncertainty brought on by the new administration. Our message: stay invested. More often than not, the market has risen, and attempting to guess which years will be the positive ones is unlikely to succeed. Regardless of who wins the Super Bowl, our message is the same. Focus on Quality and Value, and forget about trying to time the market.
Indices & Price ReturnsWeek (%)Year (%)
S&P 500 0.12.6
S&P 400 (Mid Cap)0.62.8
Russell 2000 (Small Cap)0.51.5
MSCI EAFE (Developed International)0.03.4
MSCI Emerging Markets0.36.6
S&P GSCI (Commodities)0.70.5
Gold2.35.9
MSCI U.S. REIT Index0.60.3
Barclays Int Govt Credit-0.10.0
Barclays US TIPS-0.10.6

Economic Commentary

Contributed by

Super-nomics

Over 100 million people are expected to watch the New England Patriots play the Atlanta Falcons this Sunday with advertisers bidding for the coveted time slots. According to Statista, the most watched Super Bowl was in 2015 when the New England Patriots beat the Seattle Seahawks 29-24 as 114.4 million people watched. Last year’s Super Bowl was the second most watched with 111.9 million viewers.

This year, Fox is charging advertisers more than $5 million for 30 seconds of airtime. Ad rates have consistently risen over the past decade but may have reached a level where they will be flat going forward.

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Advertisers measure their spending in CPM (cost per thousand viewers) and with so many viewers, overall higher costs can be justified. Super Bowl advertisements cost $3 million in 2011 which translates to a CPM of $27. Last year, Super Bowl advertisers were charged $5 million per time slot or a CPM of $44. Few other shows have a CPM that high. Sunday Night Football broadcasts, for example, averaged 20 million viewers this year and charged a CPM of $33. As the Super Bowl CPM is already far higher than other televised events, they are unlikely to continue higher.

Week Ahead

Contributed by Aleksey Marchenko

The Kick Off

Super Bowl “LI” will kick off this Sunday at 6:30 PM EST with the New England Patriots facing the Atlanta Falcons. The game will take place in Houston’s NRG Stadium. With so many viewers, advertisers are wasting no time and already began to show their Super Bowl 2017 commercials.

  • Here are seven companies expected to have spent at least $5 million to show their ads during the game: WiX, Anheuser-Busch InBev (Budweiser), L Brands (Victoria’s Secret), Intel, PepsiCo (Mountain Dew), Daimler (Mercedes-Benz) and Mars Inc. (Snickers).
  • Super Bowl spending by American consumers is expected to exceed $14 Billion or $75 per consumer this year.

Face-to-Face

Japan’s Prime Minister Shinzo Abe will meet President Trump in Washington to affirm and strengthen bilateral economic ties.

  • Japan is our fourth largest trade partner.
  • Abe will also seek reassurance of U.S. commitment to Japan’s national security.

…Going to Disneyland

As iconic as the “I’m going to Disneyland” phrase is, Disney’s big day will be on Tuesday not Sunday, when the media giant reports earnings.

  • All eyes will be on how the Rogue One movie of the Star Wars franchise did as well as subscription trends in the ESPN Network.
  • Ten other Strategic core holdings also report next week.

Strategy Updates

Contributed by Max Berkovich , Aleksey Marchenko

Strategic Asset Allocation

The Gold Trophy

Gold was a standout this week. Gold’s path to new highs hangs on the direction of U.S. dollar and the Fed.

  • Historically gold was bought as protection from inflation, but inflation has not been an issue for almost two decades.
  • Higher interest rates typically lead to a stronger U.S. dollar because demand for U.S. bonds, which must be paid for in dollars, goes up.
  • Gold began its climb in 2001 from a historic low of nearly $276 per ounce. It now stands at around $1,220, down from its $1,837 peak in July 2011.

The Coin Toss

So far, clarity on tax policy has been non-existent from Washington, but that seems to be a good thing for Municipal bonds. The federally tax-exempt bonds had a forgettable year in 2016. Higher interest rates, expectations for lower tax rates and uncertainty of how infrastructure spending would be financed, all weighed on the bond sector. However, in 2017 the sector has been a top performer.

  • We tilt our allocation away from tax-exempt or municipal bonds when possible, which means that we believe the after-tax return of taxable bonds will be higher than tax-exempt. The key input is each investor’s individual tax bracket.
  • Without a clear proposal from Washington, we do not know the breakeven point between tax and tax-exempt. For now, we will avoid a coin flip and assume the status quo.

Strategic Growth

Everywhere you want to be… even Houston on Sunday

The Industrial sector was the laggard this week, while Financials took the charge to the top thanks to an earnings report from…

  • Visa Inc. (V) the payment processing giant topped expectations, but it was the 16-18% revenue growth guidance that lit a fire under the stock. Thanks to an acquisition of Visa Europe, the company reported a 140% year-over-year increase in cross-border transactions and total transaction volume increase of 44%. The dollar value of transactions processed was $1.8 Trillion in the quarter.

Strategic Equity Income

Moving the chains

Earnings dominated the strategy this week, with the Health Care sector being the leader and industrials the laggard. The earnings story was in the Technology sector…

  • Apple Inc. (AAPL) reported a strong quarter, topping expectations. Notably, the company reported the highest revenue producing quarter in its history ($78.4 billion) and the most iPhone sales in any quarter (78.3 million units). The company reported $7.17 billion in quarterly revenue from services. This includes iStore purchases and subscriptions. Apple added to its cash hoard, bringing it to $216 billion, but 93% of that is overseas and would be subject to a repatriation tax of roughly 40%. If a tax repatriation agreement is reached and Apple Inc. can bring home that cash at a significant lower rate, that can really remove the chains.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1 billion.

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