How Thanksgiving and Black Friday Affects Stocks

Black Friday is the name given to the first day after Thanksgiving. It is one of the most important retail and spending events in the United States. Every holiday season prognosticators make predictions about the level of sales on Black Friday, and investor confidence may be affected by whether or not those expectations are met or exceeded.

If consumers follow up Thanksgiving by spending a lot of money on Black Friday and retailers show strong numbers, investors might have their first indication that it is shaping up to be a particularly profitable shopping season. This confidence can reflected in the stock prices of the retailers that post strong sales. Conversely, many take it as a sign of trouble if retailers are unable to meet expectations on Black Friday. Concern over the health of the economy is magnified if consumers are perceived to be reigning in their spending. 

The National Retail Federation predicts that 164 million people plan to go shopping in stores or online from Thanksgiving through Cyber Monday this year, spending as much as $14 billion. A Reuters/Ipsos poll suggests 43% of the shopping will happen online. Retailers like Amazon (AMZN), Best Buy (BBY) and Walmart (WMT), offer discounts and 'Black Friday', deals to incentivize shoppers to make their holiday purchases during this five day holiday period.

Thanksgiving is an important day for a lot of businesses, particularly those in the food industry. However, U.S. markets are closed in the U.S., and open for only half the day on Friday. Global markets are open, but stock market trading is unlikely to be affected by Thanksgiving alone because of the importance of the day after.

Black Friday is important because this is the shopping day on which many retailers have traditionally made enough sales to put them in the black for the year. Since many retailers consider Black Friday to be crucial to their business's annual performance, investors look at Black Friday sales numbers as a way to gauge the overall health of the entire retail industry. Economists, based on the Keynesian assumption that spending drives economic activity, view lower Black Friday numbers as an indication of slowed growth.

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

Many analysts and investors scoff at the notion that Black Friday has any real predictability for the fourth quarter or for the markets as a whole. Instead, they suggest that it only causes very short-term gains or losses. Of note, the best U.S. sector from one week before to one week after Black Friday is retail. From 2007 to 2017, a grouping of S&P 500 retail stocks posted a 5% return, compared to the average 3% return for the S&P 500 over that period. For all 10 years this basket of retail stocks has traded positively for the 10-day period. That said, this fall's selloff in the U.S. stock markets has been caused by many factors and even robust Black Friday sales may have little impact on overall sentiment.