Reader John had this question regarding the interaction of world markets:
The markets in China, Japan and Europe all trade and close before ours. I’ve often wondered if the trading on our markets is affected by the results in these other markets, like an “early warning system”. I would like your opinion on this, realizing that’s there is no absolute “yes” or “no” answer.
This is one area where I have not found any consistent relationships. Sometimes they react to our previous day’s events, and sometimes they don’t; very rarely are they front runners. Even watching the futures at night is not a guarantee that the markets will open in the direction futures trading indicates.
Last Sunday night was a good example. The Asian markets were down sharply, and the domestic futures pointed to a lower opening with the Dow trading down 120 points. When the markets actually opened, we were bouncing around the unchanged line with no clear direction apparent until later on.
While I have not measured this exactly on a day to day basis, from my general observations, the overnight effect one market has on the others appears to be totally random.