“Up until the end of March, there was little divergence [but] since April, all of the S&P 500 up move appears to have happened during extended market hours”, JPMorgan’s Nikolaos Panigirtzoglou writes, in the latest edition of the bank’s popular “Flows & Liquidity” series.
As shown in the figure (below), regular trading hours have, on average, served as a drag on US equities beginning just after the initial surge from the March panic lows.
For some, this disparity is a source of consternation. For others, it’s an excuse to conjure somewhat conspiratorial explanations. Panigirtzoglou is diplomatic. “[This] is raising questions about whether non-US investors, perhaps trading more actively during Asian or European hours, have been mostly responsible for the S&P 500 rally since April”, he says.
There are several plausible explanations for this phenomenon. For one thing, the market is driven in part by developments around the pandemic. COVID-19 news flow doesn’t start and stop based on cash trading hours for US stocks.
Further, key economic data including pivotal releases out of China and Europe aren’t released during “regular” US hours. This data is more important in the post-pandemic world, as it serves to inform sentiment around the re-opening narrative and thereby the prospects for the global recovery.
In addition to that, lots of key US data is obviously released prior to the open, with nonfarm payrolls being the quintessential example, but you can also count jobless claims, retail sales, and any number of other critical first- and second-tier data points.
Finally, don’t forget that the last two months have witnessed several instances of vaccine/therapeutic news being released outside of regular trading hours in the US. Obviously, developments on that front have the potential to move markets, as we saw last week with Moderna.
Digging a little further, JPMorgan plots US equity performance in half-hour intervals using tick data on minis, and notes a “striking” disparity between the average performance during intervals from roughly 7:30 PM ET through midnight in the January-March period and the April-July period.
The picture for European equities is quite different from that shown in the first figure above.
“For the Eurostoxx50, extended hours had a modest impact on performance and most of the market moves after or before April took place during regular European trading hours”, Panigirtzoglou notes.
For Hong Kong shares, JPMorgan says the majority of moves happened during extended Chinese hours, while for Japan, the picture is balanced (i.e., no obvious bias towards regular hours or extended hours when it comes to performance).
The bank’s conclusions are straightforward. The drag on US equity market performance exerted during after hours trading in Q1 evaporated in Q2. Explaining the dynamics witnessed from April through July, Panigirtzoglou writes that,
the arrival of important news after US hours and during European trading hours, including both US and non-US economic data as well as better virus-related news in Asia and Europe, have been important in understanding the divergence in performance between regular and extended trading hours.
Perhaps just as important as all of the above is the fact that systematic strats and algos are active around the globe, around the clock. Further, it’s not as though every US investor simply tunes out at 4:00 PM in New York and doesn’t check back in until exactly 9:30 the following morning. That was never true of professionals, and it goes without saying (or at least it should) that it’s not true of amateurs now.
“It has become easier for the average investor to trade outside of regular hours”, JPMorgan says, in two summary bullet points at the end of the section analyzing the phenomenon outlined above. “In the past, after-hours trading was more for institutional investors [but] today, the proliferation of ECNs and other trading facilities has made it easier for individuals to trade in extended-hours sessions… likely facilitat[ing] the incorporation of information arriving outside of regular market hours into prices”.
Welcome to 2020, when robots, Joe E*trade, and Mrs. Watanabe battle it out for supremacy as the new day dawns in Asia and afternoon melts into night stateside, and US investors have to set iPhone alarms to check for news during European business hours, before waking for good by 6:30 so as not to chance missing any potentially market-moving, predawn Trump tweets.
You must be logged in to post a comment.