Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 348

What night moves on the US market mean for Aussie stocks

You wake up in the morning, turn on the radio and the announcer says:

“…and now to the markets overnight, where the US share index fell 100 points - looks like being a black day for the Australian market today”.

If you're lucky you might hear the actual index value that the US drop relates to. If it’s the Dow, it’s currently around 24,000, so 100 points is only 0.4%. Occasionally the voice might compute the percentage for you as your early morning brain clicks into gear.

How Australia reacts in the day ahead 

I studied daily one-day closing price moves on the US S&P500 index and the Australian All Ordinaries index the next day. (At this time of year, the New York market closes 8am Sydney time. The ASX closes at 4pm). This gave 6,882 days of data in the 35-year period from January 1985 to February 2020.

I excluded Monday trading in Australia because of the longer time lag from US Friday close to when Australian trading closes on the Monday. Of course, on all Australian trading days there could well be Asian market events breaking which were not reflected in US markets overnight, but the time gap is much shorter.

My analysis of the results is set out in the table below.

Table 1: Total period – 3 January 1985 to 28 February 2020
Tuesdays to Fridays of All Ords trading

S&P500 move +/- % bigger than this

% of overnights S&P500 does this

% of next days that All Ords ends in same direction

0.0%

100%

65%

0.2%

76%

69%

0.5%

50%

75%

1.0%

24%

82%

1.5%

12%

86%

2.0%

6%

88%

2.5%

4%

90%

5.0%

0.5%

91%

For moves of plus or minus 0.5% or less in the S&P500, there is no reliable pattern on which to base a strong expectation for direction of the next Australian All Ords move – i.e. the Australian market is just as likely to go in the opposite direction to the US about one day in four.

But I found a neat rule of thumb we could pass on to the finance journalists to encourage them to talk percentages while we are pouring milk on the muesli.

When the S&P500 overnight moves more than 2.5% up or down, there is a 90% likelihood the Australian market will move in the same direction. Moves above 2.5% have occurred in 4% of days over the long-term period studied – that is an average of about one trading day a month.

Variations by trading day

It is also interesting to explore variation in these results by trading day and whether there was any change over time in this 35-year period.

Firstly, let us look at trading days – and remember as explained earlier, “I don’t like Mondays”. The following table splits the results for Australian trading days for Tuesdays to Fridays.

Table 2: Days of the week variation (Australian days)
Percentage of days that the All Ords move on close is in the same direction as S&P500 close overnight

S&P 500 move +/- % bigger than this

Tuesday

Wednesday

Thursday

Friday

0.0%

64%

66%

64%

67%

0.2%

68%

70%

67%

71%

0.5%

74%

74%

74%

78%

1.0%

82%

80%

82%

84%

1.5%

86%

85%

84%

88%

2.0%

84%

86%

92%

92%

2.5%

86%

88%

94%

94%

5.0%

91%

89%

100%

75%

There is not much of a trend to observe here. The bigger than 2.5% results are slightly lower on Tuesdays and higher Thursdays and Fridays. Perhaps there is a volatility momentum effect through the week when big moves are occurring.

To look at the variation effect over time, I split the analysis into last century and this century, see table 3.

Table 3: 20th Century vs 21st Century
% of next days that the All Ords ends in same direction as S&P500 overnight

S&P 500 move +/- % bigger than this

20th Century
3 Jan 1985 to
29 Dec 2000

21st Century
3 Jan 2001 to
29 Feb 2020

21st Century excess over 20th Century

0.0%

62%

68%

6%

0.2%

65%

72%

7%

0.5%

71%

78%

7%

1.0%

79%

84%

5%

1.5%

81%

89%

8%

2.0%

86%

89%

3%

2.5%

90%

90%

-

5.0%

88%

92%

4%

There is a stronger trend here for following the S&P500 but mainly where there are more data points. Perhaps we could conclude that globalisation and the internet bring a stronger influence in the 21st Century.

Now before you all go off and start day trading with these results, I should add my disclaimer – don’t try this at home! The rule of thumb presented here is for general education purposes so that market commentary is encouraged to talk and think percentages and to give big market moves rational historical context.

Postscript

This article was finalised after 4pm Tuesday 10th March 2020, a time when we saw a classic exception reflected in the ‘rule of thumb’! The S&P500 was down 7.6% the night before, and the All Ords was up 3% at close the next day due to various stimulus packages announced around the world. Events can overtake overnight movements. This opposite direction has happened 10% of the time when the S&P500 moves more than 2.5%.

 

Bruce Gregor is a Demographer and Actuary, and Founder of Financial Demographics. This article is general information only and does not consider the circumstances of any investor.

 


 

Leave a Comment:

     

RELATED ARTICLES

Are record market highs bullish or bearish?

How likely are market crashes?

Has passive investing killed small caps?

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

The greatest investor you’ve never heard of

Jim Simons has achieved breathtaking returns of 62% p.a. over 33 years, a track record like no other, yet he remains little known to the public. Here’s how he’s done it, and the lessons that can be applied to our own investing.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

Latest Updates

Shares

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Property

Baby Boomer housing needs

Baby boomers will account for a third of population growth between 2024 and 2029, making this generation the biggest age-related growth sector over this period. They will shape the housing market with their unique preferences.

SMSF strategies

Meg on SMSFs: When the first member of a couple dies

The surviving spouse has a lot to think about when a member of an SMSF dies. While it pays to understand the options quickly, often they’re best served by moving a little more slowly before making final decisions.

Shares

Small caps are compelling but not for the reasons you might think...

Your author prematurely advocated investing in small caps almost 12 months ago. Since then, the investment landscape has changed, and there are even more reasons to believe small caps are likely to outperform going forward.

Taxation

The mixed fortunes of tax reform in Australia, part 2

Since Federation, reforms to our tax system have proven difficult. Yet they're too important to leave in the too-hard basket, and here's a look at the key ingredients that make a tax reform exercise work, or not.

Investment strategies

8 ways that AI will impact how we invest

AI is affecting ever expanding fields of human activity, and the way we invest is no exception. Here's how investors, advisors and investment managers can better prepare to manage the opportunities and risks that come with AI.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.