To predict markets, investors turn not just to official government and business data but also to offbeat indicators that measure popular trends. Problem: These indicators rely largely on emotion and anecdotal evidence. They also illustrate a common flaw in financial forecasting—if you comb through enough historical data, it is easy to confuse correlation with causation. Just because you discover patterns that appear to be accurate doesn’t mean they have useful, predictive value in the stock market’s future.
Stock market statistician and historian Jeffrey Hirsch offers his take on three unusual indicators…
Doctor Copper. Theory: Rising copper prices mean the global economy will boom…declining copper prices indicate economic slowdowns ahead. The reddish metal earned this title because of its alleged ability to predict turning points in the global economy. Because copper conducts electricity so well, it’s a vital material in a broad range of industries worldwide. Reality check: Demand for copper does have some validity as a leading indicator of economic activity, but it’s not very useful for investors because copper prices have followed or lagged stock prices in recent years.
What Doctor Copper is saying now: As of April 2024, copper’s recent rise suggests continuing economic strength and a continuing bull market in stocks.
Ladies’ hemlines. Theory: Economic prosperity and stock prices move in the same direction as the hemlines of women’s dresses. When the economy is doing well, hemlines creep up to match the positive tone of the era. In recessionary periods, hemlines fall reflecting more somber times. Reality check: This may have been useful a half-century ago, but it’s long since been relegated to the indicator graveyard. When social mores loosened in the 1960s and 1970s, so did the correlation between hemlines and Wall Street. Fashion trends shift quickly nowadays and have more to do with runways, celebrities and bloggers.
What the hemline indicator is saying now: Good news for investors/fashionistas. According to Vogue, hemlines in 2024 are “hovering somewhere between the top and bottom of the kneecap,” which the magazine says “could be regarded as the Goldilocks of hemlines.”
Super Bowl Victory. Theory: If an original National Football League (NFL) team wins the game, the stock market will finish higher in that calendar year. If a team from the original American Football League (AFL)—before it merged with the NFL in 1966—prevails, expect stocks to finish lower. This indicator was first introduced by a New York Times sportswriter and gained credibility after it had proved accurate for the first 12 years of the Super Bowl. Reality check: Football has no scientific correlation with the stock market. Over the past 20 Super Bowls, the indicator has been correct only 30% of the time.
What the Super Bowl indicator is saying now: Bad news for investors/sports fanatics. The Kansas City Chiefs, an original AFL team, won Super Bowl LVIII, defeating the San Francisco 49ers 25-22.
