Spring forward, fall back: How daylight-saving time flips an S&P 500 gain into a loss

By Mark Hulbert

The Sunday that loses an hour is typically followed by one of the market's worst-performing Mondays

Should've gotten more sleep.

Small changes in mood can have big impacts on our portfolios.

When the clocks spring forward, the stock market often falls back.

In fact, the shift to daylight-saving time is, on average, followed by one of the worst days for the stock market. As you can see from the chart below, since 1998 the S&P 500 SPX has produced an average loss of 0.30% percent in the Monday session following the time change, compared with an average gain of 0.03% on all other days of the calendar.

I chose to focus this chart only on post-1998 data. Prior research - notably a study entitled "Losing Sleep at the Market" - covered the period through 1997 and confirmed the existence of this daylight-saving anomaly.

A daily alpha of negative 33 basis points may not seem like such a big deal, but it is. The research outlining this impact calculated that, in the late 1990s, "the daylight-saving effect implie[d] a one-day loss of $31 billion on the NYSE, AMEX and Nasdaq exchanges." Given how much higher the stock market is currently, that's equivalent to a loss of more than $200 billion in today's market.

The daylight-saving anomaly has continued in the years since its existence was first publicized. In fact, its magnitude since 1998 has grown relative to what it was prior to 1997. The opposite is the far more normal pattern. David McLean of Georgetown University and Jeffrey Pontiff of Boston College several years ago calculated that, after stock market strategies were publicized in academic journals, their profitability dropped by 58%, on average.

Investment implications

The research doesn't recommend basing a trading strategy on the daylight-saving anomaly. Instead, it reminds us that small changes in mood can have big impacts on our portfolios. We may think that we're entirely rational when making portfolio moves, but the odds are overwhelming that our emotions are running the show.

The research shows that sleep disruption can lead to anxiety, along with difficulties solving problems and reaching rational decisions. This in turn could cause investors to "prefer safer investments and shun risk ... during the trading day following ... a disturbance in their sleep patterns. This could push down stock prices following daylight saving shifts."

The researchers added: "Although the clock changes are known in advance, the consequences are not."

The antidote to anxiety in the investment arena is developing a trading strategy that spells out how and when to make portfolio changes. When you have a strategy in advance, rather than reacting to some external event, your emotions won't have a role - and that will keep you from losing sleep over your portfolio.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Why Treasurys are failing their biggest test in decades - and what you should own instead

Plus: The economy looks great on paper - but this split in consumer mood spells trouble

-Mark Hulbert

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03-07-26 1437ET