When it’s Black Friday, people will wait in terribly long lines and more often than not, race and fight against each other to avail the extremely special offers and discounts the retailers would allow. Meanwhile, retail store businesses rejoice and flourish as swarms of people surf into their stores. More and more retailers have joined the bandwagon in offering their wares and products at Black Friday promo prices.
Black Friday occurs the first day after Thanksgiving, and is one of the most important retail and spending events in the US. But do the stock market and retailers benefit from Black Friday?
Here’s what actually happens to the stock market when Black Friday strikes, brought to you by FSMNews. We provide in-depth analysis and detailed news stories to keep traders constantly informed in the fast-paced industry that we live in.
Thanksgiving VS Black Friday
Thanksgiving is an essential day for a lot of businesses, specifically those working in the food industry. But the stock market trading is barely and unlikely affecting by the sole occasion because of the importance of the day after—Black Friday, when investors and businesses are truly feasting. This year, Thanksgiving and Black Friday are on November 24 and 25 respectively.
Black Friday is the massive shopping day on which many retailers have, by tradition, made enough sales to put them in the black for the year. Since several retailers consider Black Friday to be crucial to their business's yearly performance, investors look at Black Friday sales figures as a way to measure the overall health of the entire retail industry.
In a research conducted by the National Retail Federation, this year’s holiday sales have the possibility to surge by 3.6% and shoppers plan to spend an estimated $655.8 billion.
The stock market is more likely affected by having extra days off for Thanksgiving or Christmas. The markets tend to witness greater trading activity and higher returns the day before a holiday or a long weekend, a phenomenon commonly called as the holiday effect or the weekend effect. Several traders look to take advantage of these seasonal impacts.
Black Friday and the Stock Market
Every holiday season, analysts make forecasts about the level of sales on Black Friday, and investor confidence may be influenced by whether or not those expectations are met. If consumers follow up Thanksgiving by spending a lot of money on Black Friday, and retailers show solid profits, then investors may have their initial hint that it is on the way to be a lucrative shopping season. This confidence is reflected in the stock market.
On the other hand, many take it as a signal of misfortune if retailers are unable to meet expectations on Black Friday. Worries over the health of the economy are increased if consumers are perceived to be saving too much. This can cause the stock market to suffer.
In this light, Black Friday could be thought of as an important indicator for the markets.
Black Friday could be called the busiest day of the year: Since 2003, every Black Friday except one has witnessed higher retail sales volume than any other date on the calendar.
Something to keep in mind…
Black Friday has had a temporary effect on the stock market previously. In 2011, the Dow Jones Industrial Average jumped almost 300 points on the following Monday after retailers posted stronger-than-expected sales. However, while Black Friday is quite a one-day big bump for businesses and the market, it could only be as what it is—for one day.
There are many analysts and investors that disapprove the concept that Black Friday has any real fourth-quarter predictability for the markets as a whole, suggesting that it only brings short-term implications on the market.
This is further proven with a 2008 Market Watch analysis accomplished by Mark Hulbert. Examining a 114-year illustration on stock market performance following Thanksgiving and throughout the rest of the calendar year, Hulbert concluded that there was no association between a Black Friday bump and Q4 performance.
For traders looking for hints as to where the market is headed, Black Friday may not exactly give you the answers. A strong or weak Black Friday performance may be a confirming factor, but it doesn’t possess the ability to change the direction of the market by itself. While short-term gains or losses will be easily detected after Black Friday, it does not guarantee nor dictate the long-term effects on the market.
Traders are likely better to find market signals by themselves, using the supply and demand trading strategy for example. Find more trading strategies and learn about chart indicators here on FSM News. Not only do we offer guides, but also up-to-date news stories on market affairs!