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Night Moves on the Market

You wake up in the early morning, turn on your radio and the voice says “….and now to the markets , overnight, the US market fell 100 points - looks like being a black day for the Australian stock market today”.

If you are lucky you might sometimes hear the actual index value that the US drop relates to. If it’s the Dow, it’s currently around 27,000 – so 100 points is only 0.4%! Occasionally the voice might compute the percentage for you as your early morning brain clicks into gear. So I thought I might do some research on what makes a big Night Move in percentage terms relative to how the Australian market reacts in the day ahead.

I studied daily one day Closing Price moves on the US S&P500 index and the Australian All Ordinaries index the next day. (The New York market closes 8am Sydney time – ASX closes 4pm). This gave 6,882 days of data in the 35 year period January 1985 to February 2020.

For moves of plus or minus 0.5% or less in the S&P500, there is no reliable pattern in the next day’s All Ords move – i.e. the Australian market is just as likely to go in the opposite direction to the US.

But I think I have found a nice rule of thumb. When the S&P500 move gets to more than 2.5% up or down, there is a 90% likelihood the Australian market will move in the same direction. Moves of this level occurred in 4% of the days covered – or on average about 1 day a month (but 4 days in February 2020 thanks to coronavirus).

So next time you meet your favourite early morning radio announcer, just explain politely that you really would like just the percentage quoted for overnight markets to get a smooth start to your day.

Postscript: A fuller version of this analysis was published on First Links 12 March 2020 at: http://www.firstlinks.com.au/night-moves-us-market-mean-aussie-stocks?utm_source=Website+Subscribers&utm_campaign=0dcea2851d-EMAIL_CAMPAIGN_2020_02_02_02_18_COPY_01&utm_medium=email&utm_term=0_953154ac75-0dcea2851d-83891449

Posted Thursday, 5 March 2020


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