Recapping the Night Effect in January | ETF Trends

While both day and night sessions are up for January, it’s been a bumpy ride.

The market has experienced more volatility in January than the past 20-year average, with notable anomalies observed during the first month of the year. Contradicting historical trends, the day sessions of the SPDR S&P 500 ETF Trust (SPY) have outperformed the night sessions year to date, although with significantly more volatility.

During the first 15 trading days of the year, 40% of hold sessions were in the tails (< -1.00 or >1.00), compared to the historical average of 26% of hold sessions in the tails. The day had 27% tail days, compared to 19% historical, and the night had 0 tail days, compared to the 9% historical average, according to data from NightShares.

In January, the day tail has been very much right skewed, leading to its outperformance, another anomaly as the day has had an average of 19% more left tail days than right tail days historically.

Investors looking to take advantage of the benefits of the night effect without missing out on gains during the day session should look to the NightShares 500 1x/1.5x ETF (NSPL), which offers 100% (1x) exposure to the day session of the S&P 500 and 150% (1.5x) exposure to the night session.

Analyzing SPY’s returns over the past 20 years (2003 through 2022), day and night sessions returned 2.05% and 7.50%, respectively, while holding the fund returned 9.71% during that period. Meanwhile, 1x/1.5x exposure (offered with NSPL) delivered 13.06% in returns, according to data from AlphaTrAI Research

Notably, during that period, the 1x/1.5x exposure Sharpe ratio is 0.65, higher than the hold and day session’s Sharpe ratios of 0.58 and 0.21, respectively. The night session Sharpe ratio is 0.70, according to data from AlphaTrAI Research.

For more news, information, and analysis, visit the Night Effect Channel.