How Thanksgiving and Black Friday Affect Stocks

black friday is the name given to the first day after Thanksgiving. It is one of the largest retail and spending events in the United States. Each holiday season, tipsters make predictions about the level of Black Friday sales, and investor confidence can be affected by whether those expectations are met or exceeded.

If consumers follow Thanksgiving by spending big on Black Friday and retailers post strong numbers, investors could have their first indication that the shopping season is shaping up to be particularly profitable. This confidence is reflected in the stock prices of retailers which are showing strong sales. Conversely, many see it as a sign of trouble if retailers are unable to meet Black Friday expectations. Concerns about the economy are amplified if consumers are seen as holding back their spending.

Key points to remember

  • Black Friday is the name given to the day after Thanksgiving, when retailers would traditionally be “in the dark” for the year; now it signals the biggest day of the all-important holiday shopping weekend.
  • Cyber ​​Monday is the Monday after the bank holiday weekend; sales during the five-day period from Thanksgiving to Cyber ​​Monday are seen as reflecting consumer sentiment.
  • Strong sales during this period can benefit stocks in the retail sector, especially stocks of companies that report strong sales.
  • However, the overall stock market and general investor sentiment are not always impacted by Black Friday results, with market participants focusing on a variety of economic and political developments.

Millions of shops on Thanksgiving weekend

According to National Retail Federation (NRF)spending an average of $311.75 over the five-day period, down 13.9% from $361.90 in 2019. More than 100 million people shopped online for the first time, and the number of online-only shoppers grew 44% to 95.7 million.

Cyber ​​Monday, the Monday after Thanksgiving weekend, when consumers return to work and shop online, is also a notable day for the retail industry; it marks the end of the five-day Thanksgiving weekend shopping period.

Black Friday Weekend and Stock Market

Thanksgiving is an important day for many businesses, especially those in the food industry. However, US stock markets are closed on Thanksgiving Day and only open for half a day on Black Friday. Global markets are open, but stock trading is unlikely to be affected by Thanksgiving alone due to the importance of the following day.

Black Friday is significant because it’s the shopping day when many retailers have traditionally made enough sales to go black for the year. Since many retailers consider Black Friday to be crucial to their business’ annual performance, investors look to Black Friday sales numbers as a way to gauge the overall health of the entire retail industry. by retail. Economists, based on Keynesian the assumption that spending drives economic activity, see lower Black Friday numbers as an indication of slowing growth.

The stock market may be affected by extra days off for Thanksgiving or Christmas. Markets tend to see increased trading activity and higher returns the day before a holiday or long weekend, a phenomenon known as the holiday effect or the weekend effect. Many traders seek to capitalize on these seasonal effects.

A particularly strong or weak buying period from Black Friday to Cyber ​​Monday tends to have a large impact on retail stocks, but it may not be large enough to influence overall stock market sentiment.

Black Friday and Stock Exchange

Many analysts and investors scoff at the idea that Black Friday has any real predictability for the fourth quarter or the markets as a whole. Instead, they suggest it only causes very short-term gains or losses.

It should be noted that the best US sector from a week before to a week after Black Friday is retail. From 2007 to 2017, a group of retail stocks in the S&P 500 returned 5%, compared to the average return of 3% for the S&P 500 over that period. For all 10 years, this basket of retail stocks has traded positively over the 10-day period. This trend continued with the S&P 500 Retailing Industry Group outperforming the S&P 500 by 1.5% and 0.1% during this period in 2018 and 2019, respectively. This trend did not continue in 2020, when the S&P 500 returned 4.1%, but the retail industry group returned only 2.2%.

Holiday Sale 2020

The NRF announced on January 15, 2021 that retail sales during the 2020 holiday season increased by 8.3% year on year (YOY), at $789.4 billion, beating NRF expectations. “Online and other non-store sales” increased 23.9% to $209 billion. This is more than double the five-year average growth of 3.5%.

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