Call me naive, but how can the market be affected by election results overnight/wee hours Eastern Time when trading has closed for the day? CNN showed like a cluster of four digital counters indicating the present condition of the futures market and three other markets, as I recall, all down (due to the uncertainty) as Trump figures rose. (Does Wall Street have a 24/7 drive-thru? Do these brokers ever sleep?) Please fill me in…gently.
You know there’s a great big world out there right? Thanks to electronic trading, trading goes on basically around the clock - no need for people.
The NYSE is only open certain hours, but there are futures markets in Europe and Asia that trade equity futures. Those are open in the US nighttime and is probably where the futures prices were quoted from.
The numbers they were showing were futures numbers. Futures are traded constantly.
What’s interesting is that after an initial 5% drop the markets recovered and only opened slightly down, and at this time they’re over 1% higher than yesterday.
One aspect of this is that futures tend to be more thinly traded than ordinary markets, so an overreaction by a small group of people has an outsize impact.
Should have been short selling yesterday … meh …
As noted, you would have lost your money, since the market rebounded sharply.
Carl Icahn apparently bet heavily on the market when it tanked last night - or so he claims.
Amusingly, columnist Megan McArdle tweeted, “I wrote a column worrying that Trump will start a nuclear war, and even I think the markets are overreacting.”
Just to add, the S&P futures can only move 5% in overnight trading. So part of the time last night it was showing -5%, 107 ‘handles’ (or integer number of points) down from Tuesday’s close, the real level was lower and not visible. Then shortly past midnight IIRC it perked up again slightly above -5%, then rocketed after Trump’s relatively gracious and responsible sounding speech around 3 am and ended normal trade hours today up more than 1% from Tuesday’s close. From last night’s bottom to today’s close was one of the biggest US stock market rallies in a matter of hours, ever.
The futures have two short breaks 3:15-3:30pm and 4:30-5:00pm Chicago time so not literally 24hrs, nor on the weekends prior to 5:00pm on Sunday.
ETA: In o/n trading Dow futures are just following S&P futures if there’s no particular news about a Dow component. ‘The US stock market’ especially outside the US means the S&P.
That’s interesting because last night Paul Krugman stated that the market would probably never recover:
Not a fan of his at all, but I’d cut him a break on that. It was the disappointment talking, like a lot of posts on this forum today.
A great way to look stupid is to say the stock market is ‘never’ going to recover from a setback. Someday it might not, but lots of egg on face in the meantime for people saying that.
The markets in Asia were open at the time. I watched the Japan Stock Exchange dive lower and lower as each state in the U.S. became a Trump state. At one point it was down over 1000 points and 6%!
What I am curious about is that later, trading began in Europe, and then America. The trading turned from a “crash” to a positive! I saw that the Japanese government was ready to step in to stabilize the markets… Perhaps that happened or other big money stepped in?
After a significant decline in futures markets overnight during the election, the US markets opened sharply down, based upon speculation of the impact of a Trump presidency. Many investors saw this as a buying opportunity, as the US president normally has marginal impact on companies’ fiscal performance. So as buyers started snatching up perceived cheap buys on stocks relative to where they were priced the day before, the prices began to rise. The overall market sentiment regarding Trumps impact upon corporate earnings reversed during the course of the day.
Just the concept of futures blows my mind. It’s gambling on what may be the demand for some widget at some point in the future, right? Kinda like betting HCR would win the election, right? Yeah, there’s something to invest in. Anyway, you say the investing in futures is constant? So, like, this totally blows my mind. At some point, they have to stop the clock and balance the books to know who was right and who was wrong, so to say, right? Instantaneous investing in the future…like 0/0…brain overload! Does not compute!
No, this is a misconception. Here’s how futures markets work:
In futures on commodities like oil, what you describe has more truth to it, since it is impractical to store oil for long periods. So if you trade (say) an oil future for Dec 2017 delivery, that’s a bet on where supply & demand will be at that future date, and the price may diverge quite considerably from the “spot” (cash, current delivery) price. Spot oil and oil for Dec 2017 are effectively two different commodities - although they are affected by similar factors, and price movements will be correlated, they are not really fungible.
However, futures in stocks indices (also currencies, gold) are quite different, because the underlying “commodity” has indefinite shelf life.
When you trade a normal US stock in the cash market, it settles in 3 days time. That gives everyone a breathing space to make sure funds are available to make payment, or if they are shorting, time to arrange to borrow the stock to deliver it.
You should think of stock futures as a way to trade stocks today (i.e. based solely on supply/demand today), but simply (for convenience) for deferred settlement to a time a few months in the future rather than just 3 days. The deferred settlement is convenient for those who are trading back and forth actively, or those who seek to hedge risk quickly, just because administratively you don’t have to worry about settling every trade separately in 3 days.
Now, the important point is that stocks don’t have limited shelf life, so the cash market and the futures market always stay in tight lockstep, becasue if they don’t there’s a simple arbitrage = a way to make risk-free money by buying one thing and selling another. The “fair value” difference between the cash price for stocks and the futures price is just the interest rate minus the expected dividends from now to futures expiration. That’s because, if the price difference exceeds that, I can borrow money (pay interest), buy cash stocks (receive dividends), sell the future and lock in a guaranteed profit.
What actually happens in practice, especially when there’s big news out and the market is moving fast, is that the futures market leads, and the cash market follows. The futures market is the first and most liquid place buyers and sellers go to trade, and you get quick movement and immediate price discovery in the futures market based on today’s supply and demand. The cash market then follows: if the relationship between the cash and futures markets is not exactly equal to the interest rate minus the expected dividends, arbitrageurs will step in, buy cash and sell futures (or the reverse) and push them back into line.
Another misconception: don’t take from this that futures traders are somehow manipulating the cash market. Market participants use one of the other, and the futures market didn’t exist, a futures seller would just sell cash stocks anyway, so the net effect on supply/demand is the same. Futures are just convenient and efficient, and they are a good thing because they facilitate price discovery.
Another misconception: don’t think moves in the futures market when the cash market happen to be closed are not “real”. The market really did trade down 5% on Tuesday night, then back up 7% over the next couple of days. Current supply and demand changed dramatically over that period.
tl;dr: The futures markets in stocks is not some arcane prediction of what supply and demand will be in the future. Think of it simply as trading stocks based on today’s supply and demand, but for settlement in (say) a three months time, the latter simply for convenience.