The Olympic Games are in full swing and all eyes are on Rio De Janiero, Brazil. Though we adore the athletics, national pride, and putting differences aside, the Olympics are also about big business and the economic impact to the hosting country.
The Brazilian Market Rollercoaster
Hosting any mega event, especially the Summer Olympics, can put huge pressure on a country and its economy. After the crowds dissipate, Rio will have spent somewhere between $15 and $20 billion to host the games. And though calculating the true costs and gains are difficult, over the past few decades we’ve seen the Olympic Games generally give a boost to the hosting country’s market. Brazil is counting on this after a tumultuous beginning to 2016. Let’s look at the major events this year that have made their market yo-yo.
In January the economy takes a hit: Soon after Brazil is declared ground zero of Zika pandemic and details of a lengthy investigation reveal a web of bribes involving Brazil’s massive state-run oil company.
By April the country slips into its worst recession in 25 years. The government is in turmoil; 60 percent of Brazilian members of Congress are under investigation for corruption and Brazil has experienced more trouble this year than most countries see in a decade.
Swirling uncertainty surrounded the games through the opening ceremonies. Luckily the day-to-day impact on the Olympic Games appears to be low and the market has taken a huge upswing. The real impact for Brazil will be seen when the world’s largest party leaves town.
Brazil presents a challenge for the perceptive investor. “There’s no quick fix to the Brazilian conundrum,” said Chad Morganlander, Portfolio Manager at Stifel Nicolaus. “Patient investors can make money, but they have to stomach that volatility.”
The U.S. Market
Though the math isn’t hard and fast, during past Olympic Games, the U.S. Market tends to experience gains. The more interesting perspective regarding market gains is related to the main companies who sponsor the games; Samsung, McDonald’s, Coca-Cola, and Panasonic. On average, the gains to these companies are huge, because sales have traditionally gone way up during the Olympics.
Of course, things can change and past market performance is no promise for future results. Nobody would advise counting on the Summer Olympics every 2 years to boost their retirement fund and using the market as your only retirement vehicle is a risky business. Is there a better way? We think so!
A Strategy to Stomach the Volatility
Being a smart investor can produce rewards but as we have illustrated, world markets are a roller coaster. Our recommendation is not to build your entire retirement nest egg on volatile markets, but instead prepare for retirement with proven wealth building strategies and then dabble in the market (if that’s your interest).
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