If you ever heard the phrase “Sounds like a case of the Mondays” then you know someone is not having a good day. In the equity markets we refer to this occurrence as the Weekend/Monday Effect, where stock prices have a slightly greater tendency to decline on Mondays.
The trend is also described as a market anomaly when a security or a group of securities perform contrary to the notion of an efficient market, where prices are said to reflect all available information at a point in time. For unknown reason, returns on Monday have historically been consistently lower than any other day of the week. In fact, Monday is the only weekday that has a negative average rate of return for the Dow and S&P with historical an average losses of –0.07%, -0.06 %. The NASDAQ Composite has an avg. loss of –0.12% on Mondays and -0.01% on Tuesdays the only other weekday with average negative returns. The Dow and S&P have been down 50% of Mondays while up only 49% of the time and 1% unchanged. The Nasdaq has been down 53% of Mondays.
Eerily enough, the biggest % decline ever was on a Monday during the crash of 1987 or referred as Black Monday, for all three major indexes, the Dow, S&P, and Nasdaq Composite posted their worst 1-day % drop ever on 10/19/1987 as each tumbled -22.61%, -20.46%, and -11.35%. Also attributing to the lower Monday averages for stock prices was the abysmal day of September 29th, 2008 when the Dow skidded to its largest point drop in history after it lost -777.68 points or -6.98% to close at 10,365.45 as did the S&P which fell -106.62 or -8.79% to finish at 1106.39 after the markets reacted to an unexpected rejection of the $700 billion financial bailout by Congress during the height of the financial crisis (although the bailout was later passed).
Another interesting bad “case of the Mondays” occurrence happened almost a year ago, when the Dow, S&P and Nasdaq Composite entered a bear market low as each fell on Monday, March 9th 2009 to a new bottom or its lowest closing level in 12-year for the Dow at 6547.05, a 12 1/2 year closing low for S&P of 676.53, and worst closing level in 6 1/2-years for the NASDAQ Composite at 1268.64.
Will this Monday support another “case of the Mondays”? Or will the markets prevail a Weekend/Monday Effect? In today’s pre-markets, the futures are pointing up: Alcoa , Home Depot , Bank of America , Caterpillar and Proctor & Gamble are leading the Dow. Although there is no single explanation of why stocks perform worse on Mondays, maybe it’s because investors are happier heading into the weekend, and unhappier when heading back to work on Monday.
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