Indicator of the Week: Is Black Friday Really That Important?

Everyone looks at Black Friday, but the week after is a better market predictor

Senior Quantitative Analyst
Nov 25, 2015 at 7:30 AM
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The biggest day of the year for retailers comes at the end of this week. The unofficial start to holiday shopping starts the day after Thanksgiving, Black Friday (some stores open on Thanksgiving). Investors and commentators will eyeing this day, keying on sales and the length of lines to get a sense of consumer strength and the economy in general. In this article, I'll take a look at how stocks have behaved around Black Friday -- and if Black Friday, or the market's reaction to Black Friday, can give us a sense of how stocks will do moving forward.

Black Friday: This first table simply summarizes how the market has done on Black Friday vs. other days. It seems to be a bullish day, with an average return of 0.22% vs. 0.04% for a typical day. Driving the outperformance is the fact that down days have been pretty mild. The average loss is less than the average loss on other days. As one might expect, the standard deviation shows Black Friday is typically a pretty quiet trading day.

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Week After Black Friday: What can we expect immediately after Black Friday? The table below summarizes the S&P 500 Index (SPX) returns on the Monday after Black Friday, and then the entire week. Monday has been awful, averaging a loss of 0.53% and positive just 35% of the time over the past 20 years. Also, in nine of the last 11 years, the Monday after Thanksgiving has been negative. Measuring volatility with standard deviation, you can see Monday has also been quite volatile.

Despite Monday being so negative, the week as a whole has been pretty good. The week after Thanksgiving has seen an average return for the S&P 500 of 0.49%, with 55% of the weeks being positive. The typical week has averaged a gain of 0.17% and has been positive 56% of the time.

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Week After Thanksgiving Indicator: If Black Friday data is an indicator for stocks going forward, then market performance on Black Friday itself doesn't tell us anything. The commentary, data, and analysis start the week after Black Friday. Therefore, maybe it's next week's return where we can really get some information on what's to come. The data below seems to suggest this.

I broke down the last 20 years by whether the SPX was positive or negative during the week after Thanksgiving. Then, I looked at how the index performed over the next three months. You can see when the index has been positive next week, the SPX has performed much better going forward compared to when it has been negative. Specifically, when the S&P 500 was positive in the week after Thanksgiving, the next three months averaged a gain of 3.74% and were positive 73% of the time. Compare that to when the index was negative in the week after Thanksgiving. In that case, the next three months averaged a loss of 1.73% and were positive less than half the time. Next week might be a good indicator on where we're heading over the next few months.

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