It’s 2 o’clock. Let’s buy shares
It’s 2 o’clock. You’ve had your lunch. Now what should you do?
Buy shares, if you follow what U.S. bank Goldman Sachs has found from trading patterns among major U.S. equity indices and ETFs.
According to Goldman’s analysis, the S&P 500 index has tended to do substantially better during the last two hours of trading.
Since the start of 2008, the index increased by an average of 11 bps per day between 2pm and 4pm. In contrast, between 9:30am and 2pm, it declined by an average of 24 bps per day. This translates into a cumulative return of 35% for holding the S&P index between 2pm and 4pm versus -54% for holding it between 9:30am and 2pm.
Interestingly, returns after 2pm depend critically on how the S&P traded up until then. When the S&P is down between 9:30am and 2pm, the subsequent 2pm to 4pm return has averaged -6 bps since the start of 2008. In contrast, when the S&P is up by 2pm, the subsequent return has averaged 33 bps – a difference of about 39 bps.
This pattern has become even more pronounced since the bear market intensified. Since October 2008, the S&P rallied, on average, a further 101 bps towards the end of trading if the market was already up by 1% at 2pm. If the market was down 1%, the S&P lost, on average, 10 bps in the last two hours of trading.
“These observations suggest the presence of significant intraday momentum in S&P returns. What’s more, the extent of this momentum has been much higher since 2008 – and especially since October 2008 — than over the previous five years,” it says.