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

Why the ASX needs dual-class shares

Rosy markets ignore darker dividend outlook for ASX

CBA could drag down the ASX 200 in coming years

banner

Most viewed in recent weeks

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Latest Updates

Superannuation

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Superannuation

Less than 1% of wealthy families will struggle to pay super tax: study

An ANU study has found that families with at least one super balance over $3 million have average wealth exceeding $19 million - suggesting most are well placed to absorb taxes on unrealised capital gains.   

Superannuation

Are SMSFs getting too much of a free ride?

SMSFs have managed to match, or even outperform, larger super funds despite adopting more conservative investment strategies. This looks at how they've done it - and the potential policy implications.  

Property

A developer's take on Australia's housing issues

Stockland’s development chief discusses supply constraints, government initiatives and the impact of Japanese-owned homebuilders on the industry. He also talks of green shoots in a troubled property market.

Economy

Lessons from 100 years of growing US debt

As the US debt ceiling looms, the usual warnings about a potential crash in bond and equity markets have started to appear. Investors can take confidence from history but should keep an eye on two main indicators.

Investment strategies

Investors might be paying too much for familiarity

US mega-cap tech stocks have dominated recent returns - but is familiarity distorting judgement? Like the Monty Hall problem, investing success often comes from switching when it feels hardest to do so.

Latest from Morningstar

A winning investment strategy sitting right under your nose

How does a strategy built around systematically buying-and-holding a basket of the market's biggest losers perform? It turns out pretty well, so why don't more investors do it?

Sponsors

Alliances

© 2025 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.