The power of the night effect was seen in large caps on Thursday for the second time this week.
As the S&P 500 is on track to shed over 3% this week, all losses have come from the day session, with the overnight session modestly in the green. By market close Thursday, the (SPY ) has declined 3.19% since the beginning of the week, with the night session climbing 0.21%, partially offsetting the day session’s 3.41% fall.
The night effect is a persistent phenomenon whereby overnight markets have historically outperformed the daytime trading session on a risk-adjusted basis. The historically lower volatility of the overnight session may lead to better up/down capture ratios, allowing investors to more comfortably maintain their target equity exposure through periods of market volatility.
At market close on Thursday, there was a 225 basis point spread between the prior night and day performance of the SPY. SPY gained 0.21% during the night session but fell 2.04% during the day trading session yesterday, according to the NightWatch Mobile App.
On Tuesday, there was a 150 basis point spread SPY’s overnight and day performance. SPY declined 0.01% during the prior night session, followed by a 1.51% drop during the day session on Tuesday, according to NightWatch.
NightShares launched two ETFs last year providing exposure to the night session of large-cap stocks. The (NSPY ) offers focused exposure to the night performance of 500 large-cap U.S. companies.
For investors looking to maintain day exposure but overweight the night, the (NSPL ) tilts toward the night, providing investment results, before fees and expenses, that correspond to 100% of the performance of a portfolio of 500 large-cap U.S. companies during the day and 150% of the portfolio performance at night.
The night effect was also observed in small caps this week. The spread between the night and day performance of the (IWM ) was 291 basis points on Thursday. IWM gained 0.07% during the night session and plummeted 2.84% during the day.
The day/night performance spread was 108 basis points on Tuesday as IWM declined 0.03% overnight, then fell 1.11% during the day trading session. On Monday, IWM’s night session was up 0.03% and the day session fell 1.49, according to NightWatch.
The (NIWM ) provides exposure to the night performance of 2000 small-cap U.S. companies.
For more news, information, and analysis, visit the Night Effect Channel.