It is easy to get caught up in the drama of the stock market during the day, but sometimes most of its work is done after the bell rings.
Bespoke Investment Research drew attention to this in their recent comments:
…this year, nearly all of the market’s gains have come from moves outside of regular trading hours. As shown, had you hypothetically bought SPY at the close every day and sold it as the next open, you’d be up 13.8% this year. Had you done the opposite and bought SPY at the open every trading day and sold it at that day’s close, you’d be up just 3.3%.1
This pattern is confirmed if we zoom out more than a year. According to Bespoke, since the middle of the 1990s stocks have outperformed significantly at night.2
Why this gap? We know that some of the biggest names on Wall Street report earnings during extended trading hours causing big price movements, yet one NY Times financial columnist notes that academics just aren’t sure.
“We can show that the gap exists,” said Huseyin Gulen, a finance professor at Purdue University who has written about the issue. “But at this point we don’t know exactly why.”3
What we do know is that this is an additional argument in the stack of arguments for long-term investing via buying and holding instead of short-term trading.
Sleep tight!
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Sources:
- Quote and chart from Sam Ro’s email titled “10 charts to consider with stocks at all time-highs” sent Sunday, September 22, 2024.
- Robin Wigglesworth, January 27, 2022, “The curious case of rising stocks in the night-time”, Financial Times. Accessed online: https://www.ft.com/content/1cc17824-3077-4e39-9a99-cbccc83a2251
- Jeff Sommer, February 2, 2018. Accessed online: The Stock Market Works by Day, but It Loves the Night (Published 2018)