The Olympics Index: Impact of the Games

Aug.18.08 | About: SPDR S&P (SPY)

The Olympics tends to be a time when most people tend to kick back and plant themselves in front of the television and take on the role of armchair sportscaster as they cheer on their favourite athletes. As for the impact of the Olympics on investor behavior, HSBC Senior Equity analyst Douglas Rowat points out that much has been written on how mood can change how we react to the markets. For example, markets in a nation’s home country tend to trade down the day after a defeat at a major soccer tournament.

Mr. Rowat decided to test the theory against previous Olympics and its impact, if any, on the performance of the benchmark S&P 500 Index of the New York Stock Exchange. What he found is that in four of the past five Games, the S&P 500 had a positive gain, an average of 1.6% during the two-week period. “The one down year – the 2000 Games in Sydney – was probably a result of the collapsing internet sector, which even the most positive investor moods wouldn’t have been able to overcome.” Mr. Rowat also tested S&P 500 performance during the 1972 Games in Munich, which was marred by terrorism. “Sure enough,” said Mr. Rowat, “the S&P 500 declined by 1.1% during these Games.”

As of the time Mr. Rowat published his note on Friday, the S&P 500 was roughly flat on the week, up 0.15%, but there was still more than a week to go in the Games. “We’re not saying that if Michael Phelps were to break Mark Spitz’s 36-year-old record of 7 gold medals in a single Olympic Games that the S&P 500 would go up, but we’re pretty sure it won’t hurt either.”

By extension, if Mr. Rowat's theory is applied to the performance of Canada's athletes at the Beijing Games and the benchmark index of the Toronto Stock Exchange, the S&P/TSX composite, things could also pick up this week. True to form, the TSX index has followed the pattern of the S&P 500 in previous Games.

Here’s the specific S&P 500 performance figures during the various Olympic Games:



Athens, Aug. 13-29, 2004          – S&P gained 4%



Sydney, Sept. 25-Oct. 09,2000   – S&P lost 2%



Atlanta, Jul. 19-Aug. 4, 1996      – S&P gained 3.7%



Barcelona, Jul. 25-Aug. 9, 1992  – S&P gained 1.8%



Seoul, Sept. 17-Oct. 2, 1988      -  S&P gained 0.5%



Munich, Aug. 26-Sept. 11, 1972  - S&P lost 1.1%