This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
The stock market’s run to record highs hit a stumbling block this week.
But data from Bespoke Investment Group circulated on Monday served as a prescient reminder to investors that the biggest problem for the stock market is being open for business.
Since 1993, when the popular SPDR S&P 500 ETF (SPY) that tracks the benchmark index began trading, almost all of the index’s gains have occurred outside of market hours.
Now, this chart does not mean that after-hours trading is where investors should be spending their time.
As Bespoke notes, this data “doesn’t factor in trading costs, and ‘buy and hold’ would have been the much simpler and better strategy.”
Rather, this chart is a reminder that the events most important to stock prices tend to happen outside of market hours. And it is the information investors learn from those events that create the majority of the basis for buying and selling stocks.
Earnings, for instance, are almost always reported before the US stock market opens or after it closes. And nothing matters more for stock prices over the long run than earnings.
Most key economic data — including the jobs report, inflation readings, and GDP — is released before the market open. The Federal Reserve’s monetary policy announcements, which come out on Wednesday afternoons eight times a year, are an outlier.
Stocks sold off on Wednesday in a move that left many traders scratching their heads, and the initial autopsies revealed some experts blaming new “zero-day options” for the otherwise inexplicable selling pressure while others were more circumspect.
But neither esoteric derivatives nor a potpourri of negative headlines are material influences on what the stock market sells investors each day — the chance to buy a share of a company’s discounted future cash flows.
And in the end, we think Bespoke’s data shows both proponents of the view that markets are efficient and those who argue stock prices resemble a random walk get to be right.
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