What can the Super Bowl oddsmakers in Las Vegas teach us about the stock market? I’m going to show you some strange similarities to what the oddsmakers in Vegas were thinking versus what the stock market was doing in January 2020.
Alright, let’s have a little bit of fun here for all you Chiefs fans. I’m a Chiefs fan, what a Super Bowl! The first chart I want to show you is from the oddsmakers in Las Vegas talking about the probability of San Francisco winning the Super Bowl.
49ers Win Probability in Super Bowl LIV
Chart 1 Twitter | Stock Market and Super Bowl Odds Similarities
If you look on the right of Chart 1, early on in the game, you can see the Chiefs had their lead and the odds of San Francisco winning were well below 50%. Then San Francisco takes the lead and with just 7:43 left, there’s a 95.3% chance that San Francisco is going to win the Super Bowl. What happened in the last 7:43? Well, its history. Kansas City scored 21 unanswered points to win 31 to 20. Yes! But look at what happened. This odds chart tanks down on the right, and there’s no way that San Francisco is coming back with two minutes to go.
How Does This Relates to the Stock Market?
What does this have to do with the stock market? Well, for about the first 21 days of January 2020, the stock market looked an awful lot like the odds of San Francisco winning. The stock market was going up and up, and then the coronavirus scare comes in and sends the markets falling. Check it out.
Chart 2 Kwanti | Stock Market and Super Bowl Odds Similarities
Since the market falling, check it out. We’ll do our best to lay these charts on top of one another here. In Chart 2 we’re looking at the stock market for January 2020. Look at the stock market here in January up, up, up 3%, all the way to January 20th. And then all of a sudden, we come crashing down. And the Dow Jones Industrial Average was off to such a great start but winds up being down -0.89% for January 2020.
Bonds are the Chiefs, Stocks are the 49ers
Chart 3 Kwanti | Stock Market and Super Bowl Odds Similarities
Now let’s have a little bit more fun here in Chart 3. What if we said the Kansas City Chiefs were the bond aggregate? And what if we said the stock market was the San Francisco 49ers? Check it out, we have seven days left to go to the end of the month, and stocks are winning. So, you might say, “Gosh, any bonds I own, I ought to just get them out of my portfolio.” And then what happens? The coronavirus scare comes in. Markets lose, and bonds take off. The bonds in January are the Kansas City Chiefs, and the stocks are the San Francisco 49ers.
So, you might get excited about Chart 4 if you’re a Chiefs fan, but you might not get too excited if you’re a San Francisco fan. In fact, you might be very disappointed. Why would you be disappointed? Well, because you didn’t own any bonds! You have to make sure you have a balanced portfolio. You also have to make sure you have things in your portfolio that can do well through all different types of economic cycles.
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How Expensive is the Stock Market Today?
Let’s spend a little bit of time talking about market valuations where we at today, and one thing comes to mind. And if you haven’t paid attention to this in the news, well, you may have been sleeping.
Tesla in January 2020
Chart 5 Kwanti | Stock Market and Super Bowl Odds Similarities
Chart 5 is of Tesla for January, as you can see there was a 55.52% gain on Tesla. All the analysts are saying they had a price target on Tesla of $300 a share. At the end of January, Tesla was over $800 per share. And you know what? They’re not as big as General Motors or as big as Ford. They’re not making money.
Chart 6 Kwanti | Stock Market and Super Bowl Odds Similarities
This reminds me so much of what we saw in the tech bubble in 1999. And I’m going to tell you that’s driven the NASDAQ to some unprecedented highs. In Chart 6, we’re comparing the NASDAQ to Tesla. The NASDAQ up 3.04%, Tesla is in the NASDAQ and buoyed a lot of that growth.
It’s kind of strange looking back a few years, and you had Apple trading at about $12 on a price to earnings ratio. Apple today is trading above $25 on a price to earnings ratio. Look at companies like Procter and Gamble that have historically traded somewhere between $15 and $21 or $22 on a price to earnings ratio. Procter and Gamble is now up well above $30 a share, and AT&T about $40.
Stocks Are Historically Expensive
Stocks are historically expensive, so anything like the coronavirus or anything that can spook the stock market and knock it off-kilter will succeed. We’re starting to see the volatility come back into the market now. However, the first few days into February things look a lot better. It’s as if the coronavirus scare is completely gone, trust me, it’s not. I anticipate we’ll continue to see volatility through February. Maybe even into March.
I think from an underlying economic perspective, things look great! The new jobs report for January was the best monthly gain in over five years at 299,000 jobs added. Interest rates are still at historic lows. There are some positive things out there. But the point is that the markets are overvalued. When you get things that like the coronavirus, or something that’s kind of outside the norm, it can tend to bring some volatility back into the market.
Don’t Panic, Get Help
The key here is not to panic over these short-term gyrations. We still want to make sure that we’re looking out for longer-term trends, things that could do some real damage to the stock market, not just a pullback of 5% or 10%.
At any rate, I encourage you always to keep in touch with the advisors here at Barber Financial Group. Come in, sit down, and talk to us. Let’s go through your portfolio, understand what you own, and make sure your portfolio fits your overall financial plan. With that, I’ll say one more time, go Chiefs! I’ll talk to you in about a month.
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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.