Why Stock Market Futures Don’t Matter

The night Donald Trump was elected president, Wall Street panicked. Stock market futures plummeted, with Dow futures leading the way, falling as much as 900 points as the shock of Trump’s surprise victory set in. Take a look at this election night chart of S&P 500 futures, courtesy of CNN Money.

Stock market futures can be misleading. Just look at what happened to the S&P 500 on election night.By the next day, that panic was magically gone, and all three U.S. stock market indexes were up slightly in Wednesday trading, kicking off a post-election rally that hasn’t fully subsided nearly 10 months later.

A similar, albeit far more muted, scenario played out this Monday and Tuesday.

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On Monday night, knee-jerk investors reacted to news that North Korea had fired test missiles over Japan, sending stock market futures tumbling more than 1%, including a 109-point decline in Dow futures. Like the day after the presidential election, however, cooler heads prevailed in time for the opening bell on Tuesday. As of this writing, all three major market indexes are flat in Tuesday trading.

If you’re not one to pay attention to stock market futures, you probably didn’t notice a whole lot of North Korea-missile panic on Wall Street. If you simply wake up, read the newspaper (what a quaint idea!) to see how your stocks and the market as a whole performed the previous day, then watch CNBC a bit around lunch time, stock market futures may not matter to you. In a time of such wild—and immediate—off-hours overreaction, ignorance can be bliss.

Stock market futures can be an interesting barometer of what to expect in the next day’s trading, but I would never trade them—nor would I buy and sell stocks based on them. If you had paid close attention to futures the night of the election or this Monday night, it’s possible they could have influenced you to make a rash decision and needlessly sell out of perfectly good positions the minute markets opened the following day. By the time the next closing bell rolled around, you might have realized you made a huge mistake.

If that’s the case, then I don’t think stock market futures are worth your attention. In today’s 24-hour news cycle filled with multiple investing-related cable channels that draw eyeballs by instantly reacting to every market-driving (and futures-driving) event with an extreme take—either panic or euphoria—you’re better off tuning it all out. Pay closer attention to the stock charts—which, tellingly, do not include share price movement in the hours that are not between 9:30 a.m. and 4:00 p.m. eastern time. If those go south, that’s a reason to sell. A sharp drop in futures is not.

Stock market futures aren’t completely irrelevant. But they should never be relevant enough to influence your investment decisions.

Chris Preston

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Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.

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