The power of the night effect was observed in large- and small-caps as stocks fell on Wednesday.
At market close Wednesday, there was a 150 basis point spread between the prior night and day performance of the SPDR S&P 500 ETF Trust (SPY), and the spread between the prior night and day performance of the iShares Russell 2000 ETF (IWM) was 265 basis points.
Markets quickly bounced back as large- and small-cap stocks rebounded during the following overnight trading session, with large- and small-caps both recording positive performance to start Thursday on a high note.
This pattern of losses during the day but steady gains at night highlights the power of the night effect, a phenomenon whereby equities have historically performed better during the overnight session (when local markets are closed) than during the day when markets are open. Over the past 20 years, the night session has outperformed the day session from a risk and/or return perspective.
“Market volatility remains high in 2023, and investors are missing out on gains that are available in after-hours trading if they own traditional S&P 500- and Russell 2000-based index ETFs without paring them with alternative products,” Todd Rosenbluth, head of research at VettaFi, said.
On Wednesday, SPY gained 0.52% during the night session, following by a 0.98% decline during the day session, according to the NightWatch Mobile App.
Meanwhile, IWM increased 0.95% during the night session and fell 1.70% during the day trading session on Wednesday, according to the NightWatch Mobile App.
Investors can gain exposure to the overnight trading session via NightShares ETFs. The NightShares 500 ETF (NSPY) offers exposure to the night performance of 500 large-cap U.S. companies, while the NightShares 200 ETF (NIWM) provides exposure to the night performance of 2000 small-cap U.S. companies.
The NightShares 500 1x/1.5x ETF (NSPL) offers exposure to both night and day sessions, 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.
For more news, information, and analysis, visit the Night Effect Channel.