The Trend

The Thanksgiving Effect You May Not Be Aware of…

About 75% of the time since the end of World War II, markets have rallied over the Thanksgiving holiday. In fact, the Wednesday before the holiday and the Friday following have shown higher gains than your normal Wednesday and Friday.

This year was no different, as the S&P 500, NASDAQ and Dow Jones Industrials hit all-time highs. Granted, some of the latest rally is from relief the election is over, and hopes OPEC can come to an agreement, but some of that gain is from the historical Turkey Day Effect.

Even in the worst of years, the effect can be seen.

During the subprime chaos of 2008, the Dow Jones still gained 4% between the Wednesday prior and the Friday following the holiday.

Analysts suggest a variety of reasons for the seasonal strength.

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One, it’s one of the heaviest travel weeks of the year with millions of people traveling, filling up their cars with gas, or flying home. Airline stocks gained an average of 16% over the last two weeks, for example.

Two, November is historically a stronger month for stocks after investors move past the historically poor returns of September and October. 

Three, investors are excited for Black Friday and Cyber Monday, as more than 47% of consumers were expected to shop online this year.

The National Retail Federation said it expects total holiday sales to jump 3.6% to $655.8 billion, thanks in great part to online shopping, which already soaring above $3 billion for the first time on Black Friday alone.  Meanwhile brick and mortar store sales slipped 5%.

Of the big cap names, will be a significant beneficiary, with some analysts pegging its share of the U.S. commerce market as high as 35% to 40%. 

It shouldn’t come as a surprise that stocks are rallying this time of year with these sales.

But be cautious.  Markets also have an historical tendency to sell off in the days that follow the Thanksgiving holiday. 

Plus, with markets greatly over-extended with likely OPEC meeting failure and a potential 50 to 75bps rate hike in December, markets are overdue for a sizable swing lower.