We have a rather light week for economic data. The biggest reports came last week. Earnings season continues. Everyone is keeping a close eye on President Trump, wondering what might happen next. Meanwhile, stocks are at all-time highs and interest rates have stabilized. This combination creates more questions than answers, which will lead the punditry to wonder:

Is the market optimism justified?

Last Week

Last week the economic news was strong, but (once again) with little reaction from stocks.

Theme Recap

In my last WTWA two weeks ago I predicted a focus on volatility, wondering whether policy uncertainty would have a reaction in stocks. That was a good call, although overshadowed by the policy moves themselves. There were several articles on volatility, mostly noting the lack of reaction in the VIX.

The Story in One Chart

I always start my personal review of the week by looking at this great chart from Doug Short via Jill Mislinski. She notes that the week’s gain was all from early action on Friday. Some attributed this to the employment report, but the timing is more consistent with a reaction to Trump actions on Dodd-Frank.

Let us also update another chart from this useful weekly article — a graphic picture of drawdowns. You can readily see both the frequency and magnitude.

Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read his entire post for several more charts providing long-term perspective.

Some Super Bowl Fun with Two Hidden Lessons

Most readers will be watching the Super Bowl today. Did you know how important this is for market performance in 2017? The old AFC/NFC forecast is passé. We now must “dig deeper” into the data. By email I received an analysis that looked at Manning’s, Broncos, and other factors. I’ll focus on this year’s table.

And here is the recommended interpretation:

Looking at the averages, one might think that having New England or Bill Belichick in the big game is no big deal. A look at the year by year results shows that this could be a huge deal since the averages mask big swings in both directions.

For New England, just being in the big game could be a bearish sign as the market has dropped 6% on average in years where the Patriots have played in the Super Bowl since the turn of the century. During the Tom Brady dynasty years, the Patriots have won four of six times so far while the market is tied 3-3. Two of the years the Patriots have made the big game, 2002 and 2008 have coincided with major bear markets, an ominous sign.

Markets have also been volatile in years where Bill Belichick has coached in the big game both with New England and the New York Giants. Following his coaching appearances, the market has finished up 30% once, down 30% once, up 20% once and down 20% once.

Conclusion: What Super Bowl matchups could mean for the market in 2017

Based on the volatile reaction by markets to seeing New England and Bill Belichick in the Super Bowl, combined with the short-term positive, long- term negative reaction to last year’s win by Peyton Manning and the Denver Broncos, it looks like we could be in for a highly volatile for the markets this year. The bull market of recent years could be due for a setback. While signs are mixed over what direction the market may finish the year, there is a strong possibility of a 20% plus move this year.

Jane Wells asked some questions (What milestone did the Dow recently pass? Who is Janet Yellen?) to the high-income Super Bowl Participants. You will enjoy their answers.