When talking about the market's intraday performance, we have heard a number of people comment that the recent trend for the S&P 500 has been to rally in the afternoon after Europe closes and that the weakness over there no longer casts a pall over our markets. While the argument sounds plausible in theory, the reality is actually closer to the opposite.
The chart below shows the 50-day rolling average return of the S&P 500 in the morning (prior close to 11:30) as well as the afternoon (11:30 - close). For this study, we used 11:30 AM ET as the dividing line given that this is the time that European markets close (although there is a portion of the year in March where the close is one hour later due to the different starts of daylight savings time). Since mid-April, the morning has actually been a better time of day for the market than the afternoon. Over the last 50-days, the S&P 500 has been up an average of 0.11% in the morning, while the afternoon has only seen an average return of just 0.01%.
Part of the explanation for the strong mornings has been a trend of strong opens. In fact, with an average gain of 0.07% so far this year, the opening half hour of the trading day has been stronger than any hour of the trading day, and almost twice as strong as the next closest hour (11-12). In our view, the strong opens this year have been due in part to foreign flows of capital into US markets. With markets around the world opening ahead of the US, the funds for any asset shifts into US markets are raised before the US opens and then have to wait for our open before they can be allocated.
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