With the Dow Jones Industrial Average having exceeded 14,000 for the first time since October 2007 during Friday’s trading session, the timing could not have been any better for investors to turn to one of the most irrational stock-market indicators in all of trading. In the simplest terms, the indicator suggests that if the AFC wins, the market will decline for the balance of the year, whereas if the NFC wins, the market will advance. Sounds absurd — except it has been accurate 75% of the time. This is the ultimate case of “Correlation does not prove causation.”
Beware of the Ravens
Based on this indicator, the victory by the Baltimore Ravens is a bad omen for the remainder of the year. The market, according to the past accuracy of this sign, has a 75% likelihood of declining for the whole of 2013. If you see a sell-off in the next few days, however, it is not time to panic. At current levels — particularly given some of the ongoing economic weakness in the economy — a correction of some kind should be expected.
Last week’s surge to push the Dow past 14,000 has the Ravens calling “nevermore, nevermore,” but perhaps a more analytical approach is in order. The two top-performing stocks last week were Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) . Each stock was up roughly 4.4%, bolstered by new law set to go into effect over the weekend.
The new law makes it illegal for individuals to unlock, or “jailbreak,” their smartphones and then switch carriers. While the law is anti-competitive, anti-freedom, and, therefore, anti-American — if you’ll permit a little editorialization — the law is great for wireless providers. It is expected to boost customer retention by ensuring that individuals will not obtain premium smartphones and then switch to lower-cost carriers that do not offer the same devices. I suppose that in a world in which the Super Bowl indicator can be given a voice, it should come as no surprise that the law will make it harder to get the best service for the lowest price.
The next-best-performing stock in the Dow was Caterpillar Inc. (NYSE:CAT) , which climbed more than 4% despite disappointing earnings numbers. The company reported earnings per share of $1.46 excluding one-time items; analysts had been expecting EPS of $1.69. Revenue fell by 7% to $16.08 billion against forecasts of $16.12 billion. The catalyst for the rise, however, was the generally upbeat outlook and guidance offered at $7 to $9 per share. A variety of analysts had lowered projections to less than $8, so the wide range felt like an optimistic view heading forward.