Congratulations to the 2013 Boston Red Sox for taking home the World Series title. As a native Bostonian, not much could make me happier for more reasons than one. A Marathon bombing victim aptly put it in a wider perspective prior to the start of the series when they proclaimed, “wining the World Series would take the defining moment of 2013 for the city of Boston, and change it.” Well put.
Everyone likes to look at coincidental indicators during and after big events (Super Bowls, Presidential Elections, etc.), and of the one’s I have read, we all should be fearful of the market going forward. Based on the indicator analysis I have read, the Red Sox sealed the deal not only on a title, but on weaker S&P returns going forward. Unfortunately for all of us, since 1986, the S&P has had a meaningful better run in the periods after the National League won the World Series.
Immediately, an optimist would point to the fact that two poor years dominate the analysis. In particular, it is affected by the “misfortune” of the Yankees winning the 2000 World Series followed by the popping of the Internet bubble, and the Red Sox winning in 2007 just ahead of the great financial crisis. Altough the AL beats the NL in immediate returns (the following month), the paths diverge from there even when reviewing medians rather than averages.
Looking at the two competitors specifically, the Cardinals have had a more consistent forecast, and the Red Sox portent little good. Altough the S&P 500 performed better in years that the Cardinals won, the results following any appearance were solid. However, the returns following a Red Sox appearances were rougher. Note also that they came within one game of the 2008 World Series, losing to the Rays in Game 7 only weeks following the collapse of Lehman Brothers which would have made it look worse. The Red Sox only losing appearance in the last 28 years coincided with the S&P eeking out a positive return in the following year, but even that positive return is dubious. It ranks among the lowest of the NL winners’ aggregate returns. Compare those results to the Yankees who have appeared in almost twice as many World Series. Although they preceeded some tough times, but also won the title ahead of some very good sessions as well. The same can not be said of the Red Sox.
However, don’t dispair! As an American League supporter (and particularly a Red Sox fan), I sought the silver lining. All this fun analysis previously assumed one thing: that the World Series winner is a leading indicator. However, if we switch the assumption we can feel less bad economically about them winning. What if the league winner is not the independent variable in the equation, but rather the dependent one?
Maybe World Series winners don’t predict the future S&P returns, but rather are a result of them! By flipping that assumption around, we can easily suggest that the Red Sox were destined to win by the previous twelve month S&P return of 27.7%. On average, if the years, quarters and months leading up to the World Series are strong, the American League team has the advantage.
The only year in the last 28 with a preceeding negative return by the S&P 500 that the American team won was 2002 when the Angels defeated the Giants.
So fear not Red Sox supporters! Be completely joyous in victory. Our team’s victory did not spoil the S&P’s bull run …. i hope :~/