Investment Commentary – November 24, 2021

Year to Date Market Indices as of November 24, 2021
• Dow 35,623 (17.83%)
• S&P 4,669 (25.64%)
• NASDAQ 16,222 (26.13%)
• Barclay Bond Aggregate (-3.58%)
• Fed Funds Rate 0-0.25 (0-0.25)
• Annual Inflation Rate 5.4% (As of 10/13/21)

Do Thanksgiving and Black Friday affect the stock market?

Due to factors such as the “holiday effect”, seasonal investor optimism, and a sharp rise in Black Friday retail sales, we may see shifts in the market around Thanksgiving and Black Friday.
While investors sometimes use Black Friday sales as an indication of a company’s health, the truth is that there is no empirical data to back this hunch.

Since there is no direct correlation between a company’s Black Friday sales and their Q4 performance, it is best practice to consider a company’s overall health when choosing one stock over another.

Even if we see market movement around Thanksgiving and Black Friday, the effects are likely to be short-lived, and we can expect the market to normalize in no time.

Although the stock market might see some movement following Thanksgiving and Black Friday, the effects will likely be short lived. Many analysts and investors believe that the holiday weekend has no real predictability for the fourth quarter or the markets as a whole.

A reason for the movement in the stock market

Part of the reason the stock market sees movement around this time of year is due to a phenomenon called the holiday effect. This states that markets tend to see increased trading volume and higher returns the day before a holiday or long weekend, perhaps because investors want to get in their last trades before the stock market closes for the week. U.S. stock markets are closed on Thanksgiving and open for only for half the day on Black Friday.

Others suspect that the holiday spirit might give investors a sense of optimism that translates into stock returns. However, there is no empirical data to back this up.

The market movement around Thanksgiving and Black Friday could also be attributed to another factor: shopping. Consumers often follow up Thanksgiving by shopping for Black Friday sales, so the holiday is seen as a “sentiment indicator” or sign for how healthy the consumer is. If retailers show strong numbers at this time, investors might believe that this is the start of a strong shopping season, pushing stock prices up. However, if retailers are unable to meet expectations on Black Friday, investor confidence could plummet, possibly causing stock prices to fall.

Retail shines

Data shows that retail is the best-performing sector from one week before to one week after Black Friday. From 2010 to 2020, the S&P Retail Select Index (SPSIRE) gained 3.23% during that timeframe, compared to the S&P 500’s average return of about 1.8% and consumer discretionary stocks (the industry under which retail falls) posting an average return of 2.57%.1

Dow Jones Thanksgiving of 1991: 9,834


News Around The web:

Mixed market: The S&P 500 and the NASDAQ posted modest gains, recovering from their small losses in the previous week. The Dow, however, slipped in a week that produced strong gains in the consumer discretionary and information technology sectors but pullbacks in materials, energy, and financials.

Earnings wrap: Figures from the just-completed quarterly earnings season show that profits at S&P 500 companies climbed an average 39% compared with the same quarter a year earlier, according to FactSet. That’s the third-largest quarterly increase since 2010. Materials posted the strongest earnings growth at the sector level, surging by 90%.

Oil slick: U.S. crude oil prices fell for the second week in a row, slipping to around $76 per barrel. That’s about 10% below a recent high in late October, when oil climbed to its highest level in around seven years. Recent debate about the United States and other major economies potentially tapping oil reserves has been among the factors that have sent prices lower.

Infrastructure movement: President Biden’s two major economic packages gained momentum. On Monday, he signed into law a $1.2 trillion measure to upgrade traditional infrastructure. On Friday, the House passed a larger package addressing human infrastructure needs. That proposal now heads to the Senate, which is expected to trim the measure in terms of price and policy scope.

Wednesday data feast: Wednesday will yield a bumper crop of economic reports in a holiday-shortened week. Releases are scheduled on everything from quarterly GDP to U.S. Federal Reserve meeting minutes, weekly unemployment claims, and more. U.S. markets will be closed Thursday due to the Thanksgiving holiday, and markets will close early for the day on Friday. (Market Indices) (This day in Financial History) (Around the Web & Upcoming Events) (YTD Performance Chart)