By Sam Stovall Just as the outcome of the Super Bowl has helped some investors divine the full-year performance for the stock market (see BW Online, 2/3/05, "The Bulls Pull for the Eagles"), could the victor of Major League Baseball's midseason All-Star Game help prognosticators get a handle on how equities will fare in the second half?
The answer is a qualified yes -- the qualifications being a willingness to accept correlation without causation and a belief that history will repeat itself. In other words, it's a fanciful, but fun, notion. (Of course, investors should be fully aware that past performance is not an indicator of future results.)
SECOND-HALF RUNS. The Midsummer Classic will be played this year in Detroit on July 12, pitting leading players of the American League (AL) against those of the National League (NL).
Frequently, baseball partisans will take sides, rooting for their favorite team's league. But if you're an investor who doesn't really care who wins this All-Star Game, you might decide to become a National League supporter after examining the following statistics.
According to www.rauzulusstreet.com, this midseason contest has been played 75 times since its inception in 1933. It was not played in 1945 and was held in both an AL and NL city during the 1959, 1960, and 1961 seasons.
The table below summarizes the S&P 500's price change during the second half of the year in which the American or National League won the All-Star Game. The second-half price change for the S&P 500 was not considered when the game was not played, when the leagues split the two games played in 1959, or when the Midsummer Classic ended in a tie in 2002.
GREAT NL BATTING AVERAGE. The S&P 500 posted an average advance of 2.6% in the second half of the year in which the American League won the All-Star Game. The frequency with which the market posted a positive return during the final six months after an AL victory was 58% (18 of 31 times), which, in my opinion, was no better than the results of a coin toss. Besides, the S&P 500 gained an average 4.1% during all second halves, so in reality the market actually underperformed whenever the AL won the game.
However, the S&P 500's average increase of 5.6% following an NL triumph was more than twice the average outcome for an AL victory, and the NL's frequency of a positive return (aka batting average) was a whopping .760, or three out of every four at bats.
S&P 500 Second-Half Performance after MLB All-Star Game: 1933-2004
No. of Wins
S&P 500 2H % Chg.
Frequency of Positive Result
Source: Standard & Poor's
So what does this tell us about the market's likely outcome for the second half of 2005? Absolutely nothing. But if you were looking for a reason to root for one league over another while watching the game, now you have one. Of course, you could put aside all the market implications for a while and simply enjoy one of summer's traditional pleasures.
S&P STARS: Since January 1, 1987, Standard & Poor's Equity Research Services has ranked a universe of common stocks based on a given stock's potential for future performance. Under proprietary STARS (STock Appreciation Ranking System), S&P equity analysts rank stocks according to their individual forecast of a stock's future capital appreciation potential versus the expected performance of a relevant benchmark (e.g., a regional index (S&P Asia 50 Index, S&P Europe 350 Index or S&P 500 Index), based on a 12-month time horizon. STARS was designed to meet the needs of investors looking to put their investment decisions in perspective.
S&P Earnings & Dividend Rank (also known as S&P Quality Rank): Growth and stability of earnings and dividends are deemed key elements in establishing S&P's earnings and dividend rankings for common stocks, which are designed to capsulize the nature of this record in a single symbol. It should be noted, however, that the process also takes into consideration certain adjustments and modifications deemed desirable in establishing such rankings. The final score for each stock is measured against a scoring matrix determined by analysis of the scores of a large and representative sample of stocks. The range of scores in the array of this sample has been aligned with the following ladder of rankings:
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S&P 12 Month Target Price: The S&P equity analyst's projection of the market price a given security will command 12 months hence, based on a combination of intrinsic, relative, and private market valuation metrics.
Standard & Poor's Equity Research Services: Standard & Poor's Equity Research Services U.S. includes Standard & Poor's Investment Advisory Services LLC; Standard & Poor's Equity Research Services Europe includes Standard & Poor's LLC- London and Standard & Poor's AB (Sweden); Standard & Poor's Equity Research Services Asia includes Standard & Poor's LLC's offices in Hong Kong, Singapore and Tokyo.
In the U.S.
As of March 31, 2005, research analysts at Standard & Poor's Equity Research Services U.S. have recommended 30.8% of issuers with buy recommendations, 56.7% with hold recommendations and 12.5% with sell recommendations.
As of March 31, 2005, research analysts at Standard & Poor's Equity Research Services Europe have recommended 29.2% of issuers with buy recommendations, 50.5% with hold recommendations and 20.3% with sell recommendations.
As of March 31, 2005, research analysts at Standard & Poor's Equity Research Services Asia have recommended 34.3% of issuers with buy recommendations, 48.0% with hold recommendations and 17.7% with sell recommendations.
As of March 31, 2005, research analysts at Standard & Poor's Equity Research Services globally have recommended 31.0% of issuers with buy recommendations, 55.2% with hold recommendations and 13.8% with sell recommendations.
5-STARS (Strong Buy): Total return is expected to outperform the total return of a relevant benchmark, by a wide margin over the coming 12 months, with shares rising in price on an absolute basis.
4-STARS (Buy): Total return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis.
3-STARS (Hold): Total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis.
2-STARS (Sell): Total return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price is not anticipated to show a gain.
1-STARS (Strong Sell): Total return is expected to underperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis.
Relevant benchmarks: in the U.S. the relevant benchmark is the S&P 500 Index, in Europe the S&P Europe 350 Index and in Asia the S&P Asia 50 Index.
For All Regions:
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Readers should note that opinions derived from technical analysis might differ from those of Standard & Poor's fundamental recommendations. Stovall is chief investment strategist for Standard & Poor's