Remember after the Houston Astros won in 2017? Or Cubs in 2016?
Is there actually a difference in stock market performance depending on who wins the World Series? Should you really change your investment plans based on an American League or National League victory? Of course not. But let’s explore anyway.
The World Series
The inaugural World Series took place in 1903, with the Pittsburgh Pirates, National League champions, competing against the Boston Pilgrims (now Red Sox), American League champions. Boston won that first World Series and through 2018, there have been 114, occurring every year except 1904 and 1995.
The American League has outpaced the National League in these contests, 66-48. The New York Yankees have taken the lion’s share of AL victories, with 27.
The St. Louis Cardinals, of the NL, are second in Series victories with 11. The Philadelphia/Oakland A’s have 9 as do the Boston Red Sox and the New York/San Francisco Giants have won eight. The Brooklyn/Los Angeles Dodgers have earned six titles.
A number of other teams have won five times or fewer. The Houston Astros have played in a World Series but had never won – until 2017 of course.
The Stock Market
Oddly enough, a pattern has (sort of) emerged. An academic study compared the performance of the Dow Jones Industrial Average in years following victories by AL or NL teams, for every World Series. This study used the geometric average of gains, a more advanced method of averaging.
In the 48 years following a National League victory, the DJIA increased an average of about 8.4%. It increased only about 2.5% in the 66 years following an American League victory.
Consider the last 3 years:
Happy investors will of course remember that for the calendar year 2017, the DJIA raced forward by 25% following the 2016 National League-Chicago Cubs’ first World Series victory since 1908.
Unhappy investors will of course remember that for the calendar year 2018, the DJIA dropped 6% following the 2017 American League-Houston Astros first World Series victory ever.
Nervous investors are worrying that in 2018, the American League-Boston Red Sox won and are hoping that the fourth quarter of 2019 doesn’t wipe out the DJIA’s best three-quarter start to the year since 1997.
Considering the World Series history from 1935-2008, another analysis found distinctions in performance in the fourth quarter of the same year of the Series in question:
After a National League victory, the S&P 500 gained an average of about 4.2% in the fourth quarter.
An American League victory led to an overall return of about 2.8% in the fourth quarter.
Remember what happened in the fourth quarter of 2018 after the American League-Boston Red Sox won?
The major U.S. equity indexes suffered their worst quarterly declines in roughly a decade, sending markets into bear market territory – down more than 20% from their recent highs.
Dow Jones Industrial Average
S&P 500 Index
NASDAQ Composite Index
S&P MidCap 400 Index
Russell 2000 Index
Read our blog post: Strategies to Generate Income in Retirement
Professors & Baseball
In another study in the Journal of Accounting and Finance, five researchers also took on the question of whether the results of the World Series affected the stock market. The researchers examined the S&P 500 results for 1951-2011, excluding 1994 (no Series in 1994). The AL won 34 of the 60 World Series preceding these years, while the NL won 27.
The S&P 500 rose, on average, about 15% after a National League victory and only about 11% when an American League team won.
Based on their statistical analysis, however, the authors concluded that there was no actual correlation between the victors and the market. Warning investors not to rely on the World Series, they caution that “such anomalous investment strategies are detrimental to creating wealth.” However, it’s still interesting to consider the coincidental relationship, right?
In the 20th century, the DJIA rose an average of 7.5% for all years following the World Series (1904 through 1999, excluding 1905 and 1995). Extending the time
frame by another 17 years (1904 through 2018), the DJIA rose an average of about 7.9%.
In the years after the Yankees won the World Series, the DJIA grew 8.3%, on average. However, the DJIA rises 12.9% after the Yankees lose the World Series (13 times). So, the market seems to prefer losses by the Bronx Bombers over wins.
Their National League, cross-city rivals have fared even worse, however. The New York Mets have won the World Series twice, in 1969 and 1986. In 1970, the DJIA rose a mediocre 4.8%. And the Mets 1986 victory preceded the stock market crash of 1987, which saw the market plummet by 23%.
Compare this to the Chicago Cubs, a three-time Series winner (1907, 1908 and 2016), whose victories
preceded DJIA growth of 46.6%, 15.0% and 25.0% for
1908, 1909 and 2017, respectively.
Following the 11 World Series victories of the St. Louis Cardinals, the DJIA rose 12.4% and the Giants’ first seven victories led to a rise of 10.5%. In the eight years following Red Sox titles, unfortunately, the DJIA grew only 1.1%. This includes large gains after their 1903 and 1918 wins, but also a big loss after their 2007 victory. We will see if the 2018 Red Sox victory – the ninth for the Red Sox – reverses this trend.
No World Series
The World Series has been cancelled on two occasions. In 1904, the NL champion New York (now San Francisco) Giants refused to play the AL champions. And then a prolonged players’ strike prevented the 1994 World Series. In 1905 and 1995, the DJIA shot up by 38.2% and 33.5%, respectively. That’s an average of 35.9%. Thus, the DJIA grows dramatically after seasons where there is no World Series. Interesting…
Summary & Conclusion
As these analyses show, the market has surprisingly done better in years after the National League wins the World Series. In addition, it appears that:
The market does especially well after there is no World Series.
The DJIA increases more in years after the Yankees lose the Series than in years they win.
When the Cubs, Cardinals, or Giants win, the DJIA shoots up in the following year.
After Red Sox, Mets, or Pirates victories, the market grows, but not very much.
There is, of course, no correlation between the World Series victor and the stock market. Even if there were a correlation, only the Yankees have enough victories (27) to form a statistically significant number for study.
But the fact is that people like to look for patterns in random data. It makes life more interesting. However, the key to successful long-term investing, of course, lies elsewhere. Still, it’s fun to be an armchair analyst looking at unique measurements that have nothing to do with traditional financial measures.
So, Houston Astros or Washington Nationals? Or is it too late to cancel the 2019 World Series?
Copyright © 2019 RSW Publishing. All rights reserved. Distributed by Financial Media Exchange.
Every person is unique and has certain characteristics and qualities that make them who they are. In the same way, every investor has a unique tolerance regarding risk and reward that is frequently independent of age. When an advisor or financial columnist stereotypes an investor, they're not seeing or treating each person as a unique individual with their own appetite for risk. Read our blog post: What's your risk number?