Why Monday May Be the New Friday on Wall Street (2024)
Rocky White
·2 min read
The S&P 500 Index (SPX) has averaged a 0.29% return on Mondays in 2023. That is the best ever year for Mondays when looking at data since 1950. This is interesting given that Mondays are, historically, the worst day of the week for stocks, and the only day since 1950 to average a loss. This week I’m examining whether this is just an interesting anomaly or if it suggests a bullish or bearish case for stocks going forward.
The chart below shows the average three-month return for each day of the week from the beginning of the year. Monday sticks out because it’s the only day trending higher over the past few months, as well as the only day with a positive three-month return. Next, let’s look at how the SPX performed after times that Monday was the lone day of the week. According to the chart, it averaged a positive return over the past three months.
The table below shows dates where Monday was the only positive day of the week on average over the prior three months. I only listed the date if it was the first signal over the prior six months. The most recent signal was at the end of September. The S&P 500 was down 3.6% over the prior three months on the date of the signal.
Overall, the SPX tended to perform well after these 13 prior signals. The index averaged a return of 3.1% over the next three months, with 77% of the returns positive. That beats the typical average of 2.2% and 66% positive. The SPX outperforms a year later as well after these signals.
The bad news is that in the four weeks after the recent signal, the S&P 500 was down about 4%. There were four prior signals in which the index was down in the first month after a signal. In three of four instances, stocks fell further over the next 11 months.
The term Monday effect refers to a financial theory that suggests that stock market returns will follow the prevailing trends from the previous Friday when it opens the following Monday.
Stock prices fall on Mondays, following a rise on the previous trading day (usually Friday). This timing translates to a recurrent low or negative average return from Friday to Monday in the stock market.
This theory suggests that stock prices tend to drop on Mondays due to negative news released over the weekend. As investors digest the news and adjust their positions, this can lead to lower prices, potentially providing a buying opportunity.
During a bear market, Mondays and Tuesdays are most volatile, and stocks tend to fall the most on these days. In contrast, Thursdays are good days to sell because stocks tend to rise during that day of the week.
Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour. For example, if a stock closed at $40 the previous day, opened at $42 the next, and reached $43 by 10 a.m., this would indicate that the stock is likely to remain above $42 by market close.
It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.
On Mondays, markets can be affected by news from the weekend. On Fridays, traders may dump stocks that haven't met expectations so they don't have to hold them over the weekend.
Timing the stock market is difficult, but understanding when to trade stocks can help your portfolio. The best time of day to buy stocks is usually in the morning, shortly after the market opens. Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile.
Monday would probably be the best day of the week to buy stock, according to a market theory called the “Monday or weekend effect.” The Monday effect says that the market will continue gaining on Monday if the market was up on Friday.
The largest single-day percentage declines for the S&P 500 and Dow Jones Industrial Average both occurred on Oct.19, 1987 with the S&P 500 falling by 20.5 percent and the Dow falling by 22.6 percent. Two of the four largest percentage declines for the Dow occurred on consecutive days — Oct. 28 and 29 in 1929.
From the results it is observed that there is no significant difference among the return of week days. However, the results indicate that the returns are leptokurtic distribution with the presence of highest variance on Friday. This clearly indicates that the market is more volatile in Friday than any other days.
Sunday night is the only time of the trading week when gaps occur regularly for currency pairs. Therefore, Sunday is not the best day to trade the forex market. Monday isn't the best day of the week to trade currency either, as the first half of Monday tends to be sluggish.
For example, if the Dow had a spectacular day on Friday, this effect suggests that Monday would see gains as well. But if the Dow ended the week on a down note, it would trade lower the following Monday.
Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour. For example, if a stock closed at $40 the previous day, opened at $42 the next, and reached $43 by 10 a.m., this would indicate that the stock is likely to remain above $42 by market close.
The NYSE is open from Monday through Friday 9:30 a.m. to 4:00 p.m. Eastern time. The NYSE may occasionally close early, either on a planned or unplanned basis. In such cases, The Standard will process transaction requests received prior to the close of the NYSE.
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