The Kansas City Chiefs from the American Football Conference (“AFC”) won the Super Bowl. The market is going to have a bad year!

There are a few market theories suggesting an investor can know how the market will perform for the year based on early outcomes or planned events. The first is that if the AFC team wins the Super Bowl, we’ll have a bear market. The second is the market is favorable during presidential election years. The third we’ll mention is the adage that “as goes January, so goes the year.” In other words, if the market has a positive total return in January, it will be a good year.

We can dismiss the first theory out of hand. If true, Tom Brady, after appearing in 10 Super Bowls from 2001 to 2021 and winning 7, is the greatest market force of the 21st century. Even if there is a correlation between the Super Bowl results and the market performance, it’s an example of correlation does not mean causation.

The second theory might make sense- during an election year it may be more difficult to pass legislation as the minority party does not want to help the majority, even if the legislation would have bipartisan support during a non-election year. This provides stability for the markets which is preferred to uncertainty. Starting in 1948, the 1st post WWII election, we’ve had 19 presidential elections. In only two of the years was the total return negative, meaning in 9 out of 10 election years, the market had a positive total return, which makes the case for the theory. We’re using the S&P 500 as the measure of market performance. If we look at all 76 years during this time, we discover the market is up 8 out of 10 years, taking a little shine off the theory. The worst total return in the market of the last 76 years occurred during 2008, an election year. The other down election year was 2000. In other words, an election year does not prevent macro shocks like a housing crash, and it did not prevent the tech bubble from bursting in 2000. The average total return in all years over this time is 13% vs 10% in election years. The conclusion is the market generally has positive returns during election years, but that likelihood is not statistically different than any non-election year, nor are the returns necessarily better.

The third theory might be the most relevant after a January 2024 total return of 1.7%. The theory is based on a few ideas, including investors sell at the end of the year to realize gains, putting downward pressure on the market. Investors then buy at the start of the year, driving the market up. Another thought is bonuses issued at year end are invested in January. In those 76 years we sampled above, the market had a positive total return for the month of January in 45 of them. During those 45 years, the market went on to have a positive total return for the year in 42 of them or 93% of the time. This compares favorably to the market being up 79% of the time overall.

As a follow up question, if a positive January signals a positive year, why not wait on the sidelines for January’s result? If January is up, invest and if the month is down, stay away. The market was up more than 58% of the time even after a down January. It’s still best to be invested post January and all an investor has done is miss out on potential returns for January. The year 2001 had a positive January (total return of 3.6%) but overall was down almost 12%, and looking back January was more a “dead cat bounce” than evidence of a brighter future. 2018 had a strong January (total return of 5.7%) before closing down for the year after a poor 4th quarter as the impact of Federal Reserve rate increases were felt. The best January of the last 76 years was January 1987 with a total return of 13.5%. Most investors do not remember 1987 fondly, but the market did finish up for the year, with a total return of 5.3%. 1987 included the best January in 76 years as well as the worst total return of any month, October 1987 when the total return was -21.5%. This is the best conclusion from this theory- a positive total return in January is like giving someone a 10 meter head start in the 100 meter dash. It’s hard, but not impossible, to lose the race at that point.

In conclusion, don’t worry that the Chiefs won the Super Bowl. 2024 is an election year and January had a positive total return, but neither guarantees a great year. The underlying companies that make up the stock market will still be working every day to drive investor returns and that provides as much peace of mind as any superstition.