March Madness!

One of the greatest spectacles in American sports is the NCAA basketball tournament that commences in March and crowns a champion in early April. The tournament has grown greatly in popularity over the last two decades leading to a huge increase in participation in office betting pools and online bracket contests, even among the most casual fans. The loss of workplace productivity associated with following the tournament has been widely documented in dozens of studies over the years.

There are many reasons that the tournament, affectionately known as “March Madness,”  is so popular today. Ranked high on the list of reasons that March Madness has become a national craze would most certainly be the unparalleled drama, the unpredictability of outcomes, the propensity of upsets, and the ultimate finality of the tournament.  The 2016 edition of the tournament has been no exception with unfathomable upsets occurring in the first round, unbelievable comebacks, and heart-wrenching last second shots that have destroyed almost everyone’s brackets. And there are still three games left to decide the national champion!

With all the attention the tournament has been garnering it isn’t much of a surprise that many people have missed the “march madness” that’s been occurring in the stock markets for the past month or so. The months of January and February saw the Dow Jones Industrial Average (DJIA) and the S&P 500 indexes flirting with correction territory (a ten percent decline or more). And as the market continued their declines into February, many prognosticators proudly stated that this was the end of the bull market that started in 2009.

But then something unexpected occurred; the market declines started reversing course. And now as we end the month of March and the first quarter of 2016, equity markets are back in positive territory for the year. And when you stop to think about it, the fact that equity markets are back in positive territory represent s a ten percent  or so swing in the positive direction in a few short weeks amount of time.

While equity markets normally don’t experience the levels of volatility that we have seen for the first quarter of 2016, it does occasionally happen. Similarly, we don’t normally see such a high number of early round upsets by very low-seeded teams over high-seeded teams like we witnessed in this year’s tournament.  In fact, this year is the first time in the tournament’s history that a team with a 10 seed (Syracuse) has reached the final four round.

The point to all of this is that nobody (or very, very few people) could have accurately predicted the outcomes of all the NCAA tournament games correctly. Likewise, very few people would have guessed that the DJIA or S&P 500 would have rebounded so quickly from their February lows. There really is no need to try to anticipate what is going to happen in the short term with financial markets. It is the long run that counts. Returning to the NCAA tournament for a moment, three of the teams in the final four are number one or number two seeds, so the final outcome of the tournament isn’t really all that different from years past once we got past all of those early round upsets. Enjoy the rest of the tournament, and more importantly, enjoy the positive equity market returns!