For those of you who would prefer to listen:
There’s a football game in New Orleans this weekend. That will capture the attention of America on Sunday.
The big news heading into this week was the fate of those proposed tariffs. Canada and Mexico were slated to be the recipients of 25% levies on goods crossing the border. China was set for a 10% tariff. The Market was tense. A last-minute deal delayed them for a month. At least on Canadian and Mexican imports. That saved Super Bowl Sunday from another spike in inflation. More on that later.
China took a different approach. The tariffs went through. Beijing responded to the additional 10% levy imposed by the White House by unveiling a number of retaliatory measures of its own. They are directed at items like coal and natural gas. And it was very specific at that. This seems like more of a first move to negotiate as the tariffs China imposed were fairly benign. China notably did not include tariffs on American farm products, which would have suggested a significant escalation.
Both sides seem to be backing down. Remember, President Trump threatened 60% tariffs placed on China throughout the campaign trail. That rhetoric has cooled. This has definitely not been a maximum pressure campaign on China, at least not yet. A phone call between Trump and Xi was rumored to take place this week. It didn’t happen. But back-channel discussions seem to be taking place between Washington and Beijing. The Market is finding comfort in that.
It’s a risky deal to be going after our neighbors who are among our closest allies. But there are clear issues around immigration and drugs that need to be resolved. The US has a strong hand. A recession in Canada and Mexico is believed to be inevitable if these tariffs ultimately go through. Both nations send over 80% of their exports to the United States.
Tariffs mean higher costs for American consumers. But there are some workarounds. If not universal, tariffs can be avoided by having goods transported through third-party countries. Companies can also create alternative supply chains. We saw this happen with Vietnam, Thailand and India after Chinese tariffs were first imposed in 2018. It accelerated during Covid.
Corporate America is feeling the pressure of proposed tariffs. Pepsi said on its earnings call it’s not immune to a trade war with our neighbors as it sources aluminum and oats from Canada. But the company feels more insulated than others. Regardless, management emphasized the need for conservative guidance due to the ongoing geopolitical tensions and higher costs of doing business. This issue is likely to stick around a while.
China, Canada and Mexico, are America’s 3 largest trading partners. It’s estimated that 25% tariffs on Mexico would hit the state of Texas by $47 Billion, the most in the Union. California will feel the tariffs on China the most, with a $33 Billion hit from the 10% taxes imposed. And Michigan would experience a $28 Billion hit from the 25% tariff on Canada. These are big numbers. Canada threatened 100% tariffs on Tesla. Clearly that’s sending a message targeting one Elon Musk.
We import 4 Million barrels of oil a day from Canada, in addition to items like metals and fertilizers. But Oil represents the vast majority of what Canada exports. It could switch direction and send its crude to Asia. That’s definitely a risk. But that risk is now for another day. It’s been pushed out to March, at least for now.
The good news is, the tariff delays means Super Bowl menus will cost about the same as last year. According to a Wells Fargo report, store-bought Super Bowl snacks will cost just 0.1% more than last year. Food and drinks for 10 people, including chips, guacamole, beer and chicken wings, will cost an average of $139 around the country this weekend. That’s just 10 cents more than last year’s price.
The United States is a major agricultural producer. It’s the world’s largest producer of corn and beef, and amongst the top in soybeans, wheat and potatoes. The state of California is the largest agricultural producer in America, followed by Iowa, Nebraska and Texas. What we do import, half comes from Mexico. It’s most noticeable at the grocery store in the Wintertime. 80% of avocados in America come from Mexico, and the vast majority land in stores in January, February and March. California imports the most in the Union. The Golden State imported $602 Million worth of Mexican avocados last year and Texas brought in $285 Million.
And how about this: 20% of America’s annual avocado consumption occurs on Super Bowl Sunday. Roughly 140 Million pounds of avocados are bought for that single day. An estimated 54 Million avocados were consumed Super Bowl Sunday last year. Avocado prices were already up 14% heading into this year’s Super Bowl due to a drought. Production fell and the crop is smaller due to less water. Another option: Peru could divert its shipments regularly headed to Europe to the US. That’s not an issue yet.
Besides guacamole, you know what else tops American menus this weekend? Chicken wings. 100 Million pounds of chicken wings are expected to be eaten in 1 day. That’s 1.5 Billion wings. That would be 20 Million more than last year. Yes, there are organizations that track this stuff. How’s this for a visual: 1.5 Billion wings laid end to end would stretch to and from Kansas City to Philadelphia about 63 times. It would circle the Earth 3 times. Just imagine that!
Pepsi used to be a big player in the Super Bowl, having sponsored the halftime show for over a decade. Apple replaced them in 2023. Pepsi will still be present with commercials, which reportedly cost around $7 Million for a 30-second spot. That’s the same as it cost last year, which means this year’s Super Bowl could be the first one to not see an increase in advertising rates since the wake of the Financial Crisis.
In case you’re wondering, a 30-second ad during the first Super Bowl cost $40K. That was 1967. 50 Million people watched that championship game when the Packers defeated the Chiefs. Would you believe that game in Los Angeles didn’t sell out. It wasn’t even called the Super Bowl. That name came at Super Bowl 3, when Joe Namath’s New York Jets shocked the world by beating the Baltimore Colts.
The game has certainly evolved over the years, in size and popularity. 123 Million Americans watched last year’s Super Bowl between the Niners and the Chiefs. It was the most watched in history. There was an international audience of 62 Million, of which 42 Million were in Canada and Mexico. No surprise, last year was the most streamed too. Last year’s Super Bowl drew a rating of 42.1. That basically means 42% of American households tuned in. The highest-rated Super Bowl of all time also had the Niners. In 1982, Super Bowl 15, between the 49ers and the Cincinnati Bengals, drew a 49.1 rating. Half the country’s households watched that game. For you youngsters, that was back when there were just 3 networks and no YouTube or Netflix.
Betting on the Super Bowl has become big business too. An estimated $1.4 Billion is expected to be legally wagered on Super Bowl LIX. That would break the previous record set last year, which was $1.25 Billion. Since sports betting was legalized in 2018, Las Vegas has lost the stronghold in gambling on sports. In fact, New York could overtake Nevada when it comes to Super Bowl wagers this year.
The cheapest ticket for Super Bowl LIX in New Orleans fell below $4,000 on the secondary Market earlier in the week. It’s down to $2,500 Friday afternoon as I type. That’s 70% cheaper compared to last year’s record-breaking game. The data doesn’t lie, the Super Bowl is bigger when the Niners are there. This is not my bias, it’s a fact.
The Stock Market has a relationship with the Super Bowl. It’s called the Super Bowl indicator. It goes like this: If an original NFL team wins, presently represented by the NFC, the Stock Market ends the year higher. Conversely, if an original AFL team wins, represented today by the AFC, the Stock Market ends the year lower. Sunday pits an original NFL team in the Philadelphia Eagles against an original AFL team in the Kansas City Chiefs. This year, the Bulls are rooting for the Birds.
A sportswriter for The New York Times, Leonard Koppett, introduced the Super Bowl Indicator in 1978. Koppett pointed out that there was a correlation between the outcome of the Super Bowl and the Stock Market for the rest of the year with 11 out of 12 games accurately predicting the direction of the S&P 500 until that point. From 1967 to 2023, the indicator was correct with about 65% accuracy on the S&P. The 21st century has seen the trend reverse, being correct just 37% of the time. The Dot-com bubble seemed to burst the Super Bowl too.
As a Niner fan, I don’t like either of these teams. It’s definitely not the matchup I was hoping for. That said, I hope it’s a good game and the commercials are entertaining. The world will be watching. Super Bowl Sunday could indeed be Market moving.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
