Don't Pay Attention to This Indicator

The Dow Jones Industrial Average (INDEX: ^DJI  ) and the broader S&P 500 (INDEX: ^GSPC  ) are roughly flat today. Both are down just less than 0.1% as of 1:30 p.m. EST.

The macro story
Perhaps investors are in a holding pattern until the outcome of the election is known. Speaking of which, I've already seen two references to the Redskins indicator in my Twitter feed. According to this "indicator," a Redskins loss in their last home game before the election predicts a loss for the incumbent, while a Redskins victory indicates a win by the incumbent. That correlation has held in 17 of the 18 presidential elections since the team moved to Washington, D.C. in 1937.

This is an example of data-mining, i.e., finding a link between two variables (in this case, the Redskins' record and the outcome of elections) from within a huge data set. One could look at every football, baseball, basketball, or hockey team across every game in the season. The relationship has no causal, or predictive, value -- no value whatsoever, really, other than as a talking point for pundits. And as I write, I'm contributing to the problem. Enough about that.

The micro story
Dow component Bank of America (NYSE: BAC  ) is underperforming the market and it peers today, down by 1.6% as of 1:30 p.m. EST. The only company-specific news of any note that I can see is positive: According to an article posted on the Financial Times website on Sunday, the universal bank is now a step closer to paying its shareholders a proper dividend.

B of A peer JPMorgan Chase (NYSE: JPM  ) obtained regulators' permission to raise its dividend in the first quarter of 2011, while Wells Fargo (NYSE: WFC  ) raised its dividend in the second quarter of 2011. There is little question that the lack of a significant dividend adversely affects the valuation the market is willing to give Bank of America relative to its peers -- particularly in the current yield-starved environment.

As Fool analyst Anand Chokkavelu wrote in his premium report on B of A last month, the bank "is currently trading at a very low valuation -- on an absolute, a relative, and a historic basis." Click here to receive Anand's report and get a full assessment of the upside -- and the risk -- in the shares, as well as a full year's worth of updates.


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