How Thanksgiving Impacts the Financial Markets

When you hear Thanksgiving Holiday, what do you think? Probably Turkey, pumpkin pie, dinners with friends and family and a Thanksgiving parade. But as one of the most celebrated holidays in the United States, Thanksgiving has traditionally influenced market trends, consumer spending patterns, and investor sentiment. Our team is looking at how Thanksgiving impacts the stock market, key historical trends, and the statistics behind this holiday’s financial influence.

#1 Historical Thanksgiving Stock Market Trends

Thanksgiving, observed on the fourth Thursday of November, has a unique effect on the stock market due to its timing. Several historical patterns have emerged over time:

Pre-Holiday Optimism (Thanksgiving Rally)

Investors often feel optimistic ahead of Thanksgiving, resulting in what’s sometimes referred to as the “Thanksgiving Rally.” This trend mirrors a broader phenomenon where stocks tend to perform well before major holidays. According to research by Yale Hirsch, stocks perform above average in the days leading up to holidays, a pattern that has held for Thanksgiving as well as Christmas and New Year’s.

Friday Gains — The Black Friday Effect

The day after Thanksgiving, known as Black Friday, marks the beginning of the holiday shopping season and historically records above-average trading volumes. Not only are investors watching retail stocks more closely, but the optimism from consumer spending expectations often leads to market gains. For instance, the S&P 500 has historically seen an average return of 0.3% on the trading day following Thanksgiving.

The Thanksgiving Week Effect

The short trading week, often marked by lighter trading volume, has resulted in an average upward trend. Data from MarketWatch indicates that the S&P 500 has delivered gains approximately 70% of the time during Thanksgiving week, with an average increase of about 0.5%.

Historical Example

During the recovery from the 2008 financial crisis, Thanksgiving week in 2008 saw a significant positive shift. Following the Federal Reserve’s interventions, the Dow Jones Industrial Average gained 9.7% during Thanksgiving week, as investors anticipated stabilisation in the market and an increase in consumer spending for the holidays. This optimism, although short-lived, became a marker of how Thanksgiving rallies can provide a morale boost in challenging times.

#2 Black Friday and Consumer Spending Is A Market Driver

Thanksgiving weekend is synonymous with Black Friday, which kicks off a massive spending surge. For investors, Black Friday data is crucial as it provides a real-time barometer of consumer sentiment, which can then influence stock prices in retail and related sectors.

Black Friday

According to the National Retail Federation (NRF), U.S. consumers spent $9 billion on Black Friday in 2022, up from $8.9 billion the previous year. This high spending figure has significant implications for retail stocks. Retail giants like Walmart, Target, and Amazon often experience a bump in stock prices based on favorable sales forecasts and spending data.

Cyber Monday

In recent years, Cyber Monday (the Monday after Thanksgiving) has extended the weekend shopping spree into the digital realm. For example, in 2021, Cyber Monday sales reached $10.7 billion, according to Adobe Analytics. This shift in consumer behaviour has driven stocks of e-commerce giants like Amazon, Shopify, and even logistics firms like FedEx and UPS, which see increased demand.

Market Indicators

Black Friday and Cyber Monday spending often serve as indicators for the overall holiday shopping season. If consumer spending is strong, it often signals investor confidence that GDP and consumer sentiment will be positive for the quarter, driving up stock prices. Conversely, weak Black Friday or Cyber Monday sales can lead to downward pressure on retail stocks as investors adjust expectations.

#3 Volatility and Liquidity Concerns During Thanksgiving Week

While Thanksgiving week is typically marked by positive momentum, it also experiences reduced trading volumes. The U.S. markets close early on the Friday following Thanksgiving, resulting in less trading time. Additionally, many institutional investors and traders take time off, leading to lower-than-usual liquidity.

Impact of Lower Liquidity

Lower liquidity can lead to increased market volatility, as even relatively small trades can have a larger impact on stock prices. Historically, smaller stocks and certain sectors (like technology and consumer discretionary) are more volatile during this time, which can offer both risks and opportunities for investors.

Statistics on Reduced Volume

Thanksgiving week has consistently shown trading volumes that are 25–30% lower than average weekly volumes. In 2022, for example, the average daily trading volume on the NYSE during Thanksgiving week was around 3 billion shares, compared to a monthly average of 3.9 billion shares, indicating the impact of the holiday on trading behaviour.

#4 Thanksgiving’s Impact on Investor Sentiment and the Santa Claus Rally

The Thanksgiving period sets the tone for the “Santa Claus Rally,” a phenomenon where the stock market experiences a strong finish to the year in December. Thanksgiving provides initial data on consumer confidence, retail sales, and other economic indicators that investors use to gauge whether a year-end rally is likely.

The Santa Claus Rally Connection

According to data from Bank of America, the S&P 500 has delivered average gains of 1.3% in the last five trading days of December and the first two of January, historically known as the Santa Claus Rally. This performance is often attributed to optimism around consumer spending, year-end financial manoeuvres by institutional investors, and holiday bonuses driving increased investing.

Thanksgiving week in 2020, retail stocks and tech giants saw an increase in stock prices as consumer spending remained strong despite covid19. This set the stage for a 3.7% increase in the S&P 500 in December 2020, marking one of the more pronounced Santa Claus rallies in recent years.

#5 Investment Strategies Around Thanksgiving

Given the historical trends, some investors employ strategies specifically timed for Thanksgiving and the holiday season. Here are two common approaches:

Seasonal Stock Picking

Investors often focus on retail and consumer discretionary stocks leading up to Thanksgiving. Companies like Amazon, Walmart, Target, and even Disney (due to holiday movie releases) are some stocks that tend to receive higher trading volumes and price appreciation around Thanksgiving.

Short-Term Options Trading

Due to the increased volatility and positive price trends during Thanksgiving week, short-term traders may consider options trading strategies like call options on retail stocks. Leveraging these trends, options traders can potentially benefit from quick gains while managing the risk through limited duration.

Whether it’s the positive momentum in the lead-up to Thanksgiving, the Black Friday consumer spending rush, or the lighter liquidity that adds a touch of volatility, Thanksgiving remains a significant period for both investors and analysts.

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