All eyes are on Rio de Janeiro as the 2016 Summer Olympics prepare to take the international stage Friday. Athletes will flock to Rio to compete at the world’s most recognized and celebrated sporting event for the pride of their countries and highly coveted gold medals.
Every two years, the games not only bring in Olympians and spectators—whether they be at the games or watching on television at home—but they also generate more than $1 billion in revenue through sponsorship deals. Brands and businesses are eager to benefit from the global exposure of the games, using the event as a platform to engage with markets in more than 200 countries.
Being associated with the Olympics offers companies a number of benefits. One appealing aspect of an Olympics-related brand is the potential rise in market value for publicly traded companies that are sponsors of the games. Historically, investors love to get caught up in the hype and euphoria that encompasses the Olympic Games.
Because investor sentiment plays a pivotal role in buyer behavior and overall market performance, the euphoric feelings and overexposure to Olympic brands may lead to an increase in market activity.
Looking at the S&P 500 in relation to the past two Summer Olympic Games, a similar pattern of performance seems to emerge. During the Olympics, the markets see an increase in activity and positive monthly returns. However, these upswings tend to be short-lived, and the S&P 500 has shown negative price movements within the two months following the last two Summer Olympic Games.
Beijing (Games: Aug. 8–24, 2008)
In the midst of the housing crisis, it’s no surprise that leading up to the Beijing Games market returns for the month of June sat at -8.06 percent. However, the 2008 Games’ influence on investor sentiment saw the S&P 500 experienced only a small drawdown with a -0.99 percent return in July, perhaps in anticipation of the Olympics. Investor optimism from the display of international competition may have helped lead to positive returns for just the third time that year, coming in at 1.22 percent for the month of August. However, without the Olympic optimism, the market saw the end of a trend—suffering additional blows from the credit crisis—and September saw a monthly loss of -9.08 percent.
London (Games: July 27–Aug. 12, 2012)
Looking back at 2012, the London Summer Olympics had a late July start that saw the S&P 500 propelled to promising growth in the month’s 1.26 percent return. Following the trend of Beijing, as events wrapped up in August, the Games' influence on investor sentiment bumped the monthly return up by another 1.98 percent. Conceivably riding the wave of enthusiasm from the games, September showed an even more promising 2.42 percent return. Just like clockwork, though, the Olympic gains saw Olympic losses and the market fell -1.98 percent in October.
Looking Forward: Rio de Janeiro (Aug. 5–21, 2016)
While investors might hope to find success in Olympic investments, there is no promise of a gold medal-worthy stock or portfolio. Hope is never an investment strategy. It’s vital to consider a number of factors before investing in any asset. While brand visibility on the Olympic stage and an optimistic sentiment may influence investor and market behavior, it’s important to look at the big picture when considering whether or not a stock is a strong investment.
Heading into the games, the S&P 500 is in the midst of the second-longest bull market in U.S. history, and the fear index (VIX) has fallen to new lows. While this may appear encouraging to investors looking to profit, uncertainty—from elements like the election, the Fed’s decision on interest rates and international acts of terror—can sink into the market and impact performance.
As the 2016 Rio Games unfold, investors should keep in mind the patterns of past Summer Olympic markets and the unpredictability of the S&P. Although it might feel like a prime time to invest, history shows that is not necessarily the case.
Bryce Sutton is managing partner and co-founder of Summit Global Investments, LLC, an SEC-registered investment advisor specializing in low volatility investment strategies. Learn more at www.summitglobalinvestments.com.