It’s that time again. Every four years, a good portion of the planet shifts its focus from stocks to what matters most: soccer.
And that includes financial markets. Investment banks such as Goldman Sachs and UBS issue thick reports on the World Cup, and hazard a prediction or two. (Like many, this year both expect the hosts, Brazil, to lift the Jules Rimet trophy.) Jim O’Neill, a former Chief Economist at Goldman (he’s the man who put the Brazil in BRIC), now moonlights as a soccer commentator.
Around the world, stock and bond market trading slows down during the tournament. Some markets grind to a complete halt. In Europe, corporations try to issue new bonds a month ahead of the tournament, lest a potential investor’s attention be on 22 men and a ball instead of a Bloomberg terminal.
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That’s all well and good for the higher echelons of finance, but how is this going to affect your 401(k)? Well, based on one piece of research, prepare for a sell-off in stocks. According to that 2010 report, since the 1950 World Cup (Brazil 0, Uruguay 1), stocks have lost an average of about 2.5 percent during the days the World Cup was held, as measured by the Standard & Poor’s 500 index. This research didn’t include the 2010 tournament in South Africa (Spain 1, Netherlands 0), but stocks were down 1.3 percent during the last tournament as well.
So does all this mean you should sell or at least not buy stocks in June? Not exactly. This, like so many other market peculiarities, is what's known as a calandar anomaly. Like the Presidential cycle, the January effect, and the "sell in May" adage, it's based on a small sample size. It could simply be that these are coincidences, like a coin tossing contest that results in flipping heads 10 consecutive times.
And of course, stocks aren’t everything: Virtually all investors should have at least some proportion of their retirement investment allocated to bonds, as bonds tend to rise in price if stocks fall. That way, not matter what happens, your investments always have the best chance of winning.
—Chris Horymski
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