Sell the day and go away? US stock returns come overnight

Mornings have been lacking in joy this month for investors seeking returns in US stocks.

So far in September, regular-hours trading has featured consistent selling, according to data from Bespoke Investment Group. On average, losses on the benchmark S&P 500 index have been steepest between 10 am and 11 am Eastern (1400-1500 GMT), and every hour thereafter during the session has registered declines.

Overall, the S&P 500 has registered losses for four straight weeks, its longest such streak in a year.

"Besides some ever so modest gains in the opening half-hour, the rest of the day consists of investors hitting bids and unloading stocks," Bespoke's strategists wrote in a note on Friday.

September's activity returned US stocks closer to their long-term trend of outperforming in after-hours trading versus regular-session trading, in contrast with most of 2020, when they outperformed during the regular session.

Since the SPDR S&P 500 ETF Trust, which tracks the S&P 500, launched in 1993, it has posted a 722 per cent return in after-hours trading but an 8.5 per cent loss in trading during the regular session, according to Bespoke.

However, geopolitical and macroeconomic developments have led to after-hours underperformance in several recent instances, said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group. One such period was in spring 2019, when US-China trade tensions reached a peak. In February this year, after-hours returns fell as concerns about the coronavirus pandemic focused largely on Asia, where trading begins after US trading ends.

"A lot of the market-moving stuff is happening after hours, and that's generally why you see the market rallying overnight," Murphy said. "When there's an outside-US shock… those are the few times we see overnight underperformance."

After-hours underperformance may not last much longer, however, given recent activity.

"After dipping way in the hole earlier in the year," after-hours performance is "getting closer and closer to taking the lead in 2020 as well," Bespoke's strategists wrote last week.