Markets on Wednesday demonstrated the power of the night effect in both large-cap and small-cap stocks.
The night effect is 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.
At market close Wednesday, there was a 217 basis point spread between the prior night and day performance of the SPDR S&P 500 ETF Trust (SPY). SPY gained 0.31% during the prior night session, followed by a -1.86% decline during the day trading session on Wednesday, according to the NightWatch Mobile App.
During the same period, the spread between the prior night and day performance of the iShares Russell 2000 ETF (IWM) was 227 basis points. IWM increased 0.34% during the prior night session and declined -1.93% during the day trading session on Wednesday, according to the NightWatch Mobile App.
While the night session does not outperform the day session every day, it has historically outperformed the day session from a risk and/or return perspective.
Notably, investors do not have to accept more risk, as measured by volatility, to access the historically positive overnight returns captured by the night effect. In fact, the annualized daily volatility for U.S. small-cap stocks has been lower in the night session than the day sessions across a range of periods, according to NightShares.
Launched in June 2022, NightShares ETFs provide easy access to overnight trading performance and can appeal to buy-and-hold end clients of advisors as well as those looking for shorter-term opportunities. 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.