Filed under: Wall Street Watch, Securities, Stocks, Historical Stock Prices, Investing
Last year, Americans spent $57.4 billion on Black Friday weekend sales (counted as running Thanksgiving through Sunday) and all indications are that 2014’s spending surge will be just as big. But consumers who have waited all year to get bargains from Apple (AAPL), Walmart (WMT) and Amazon (AMZN) might want to look at the stocks of those companies as well.
Many investors — preoccupied with turkey, stuffing, mashed potatoes, pumpkin pie, football games and all those sales — may overlook that the stock market is open from 9:30 a.m. to 1 p.m. Eastern on Black Friday. But what’s more important is that Black Friday and the week leading up to it are historically bullish for the stock market.
Going back to 1950, the S&P 500 (^GPSC) has rising during Thanksgiving week 44 out of 64 years, or 69 percent of the time, with an average gain of 0.78 percent. Most gains came on the Wednesday before and Friday after Thanksgiving, which rose 54 of those years, or 84 percent of the time.
Boosted by Holiday Hoopla
Similar results can be seen during the lead-ups to Christmas, New Year’s, the Fourth of July, Labor Day and Memorial Day — though never Arbor Day. There are a number of theories as to why this occurs:
- Perhaps the most widely accepted, though least scientific, is that investors, like the public at large, are generally in a good mood before a holiday and more likely to be buyers.
- One theory better rooted in stock market mechanics is that short sellers don’t want exposure to the extended news cycles over holidays, and as a defensive measure buy up stocks to close out their open positions.
- Perhaps the explanation that makes the most sense is that with so many market participants already on vacation around the holidays, trading volume is very thin. And since over time, the market has a bullish bias, the light volume makes it easier to drive the indexes higher with a relatively small amount of buying pressure.
But whatever the true reasons are, can you use it to your benefit?
A Strategy for the Nimble Investor
One way you could would be to overweight your portfolio toward stocks in the week prior and then take profits on the last market day before the holiday or in the case of Thanksgiving, on Black Friday itself. This is key because the data shows that the market tends to act bad immediately following a holiday — supporting the notion that most pre-holiday bullishness is transitory, based only upon emotional factors.
A study by The Journal of Economic Research theorizes that an investment strategy that stays in all cash during the majority of the year and only invests in the stock market around the holidays, could potentially outperform major indexes over time.
Of course, nothing works perfectly every time. For example, in 2009 the Dubai sovereign debt crisis was announced on Thanksgiving, effectively killing any “good will” on Black Friday, sending the market down over 2 percent for the day.
The bottom line seems to be that if you are an active and nimble investor, you might be able to take advantage of the bullish bias during the holidays to add to your bottom line. However, for the rest of us, it is probably best just to loosen your belt, have more pie and enjoy the games.
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Source: Investing
