Indicator of the Week: 20 Stocks to Buy Ahead of Labor Day

Labor Day week has historically been pretty good for stocks, based on SPX returns

Senior Quantitative Analyst
Aug 31, 2016 at 6:30 AM
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Next week is a shortened holiday week as we celebrate Labor Day on Monday. This week, I'll take a look at how stocks have typically performed around this holiday. Also, I'll list some individual stocks that have historically been great, and not-so-great, during the week.

Labor Day Week: The tables below show a day-by-day summary of how the S&P 500 Index (SPX) has performed over the past 20 years during the week of Labor Day. The second table shows typical returns for comparison. 

The week has had a tendency to get off to a strong start, averaging a 0.45% return vs. the usual 0.08% on any Tuesday. Last year was no exception, and the index was up 2.5% on the day after Labor Day. The average is significantly higher than the typical return on a Tuesday, even though the percent positive is about the same (55% vs. 53%).

This, along with the standard deviation of returns, tells us Tuesday during the Labor Day week has been more volatile than typical Tuesdays. This would be expected, since there are three non-trading days of news to be digested in the returns after the holiday. The standard deviation of 1.84% is significantly bigger than even a typical Monday's standard deviation of 1.34% (not shown in the tables). Maybe next Tuesday we'll actually get a 1% move in the S&P 500. It would be the first time since July 8.

The rest of Labor Day week has shown some underperformance in the middle of the week, and then Friday has tended to be bullish. The week as a whole (last column) has been pretty good for stocks, averaging a 0.23% gain, and positive 60% of the time over the past 20 years. Compare that to a typical weekly return of 0.15% and positive 56% of the time. 

Chart 1 SPX 500 Labor Day 20 yr

The Days Before Labor Day: If the analysis above convinced you to put on a bullish trade before Tuesday, then don't be in a hurry. The first table below shows how SPX has performed on the Thursday and Friday before the holiday week. Thursday has been disappointing, averaging a loss of 0.09%, and positive less than half the time. The Friday before Labor Day has averaged a return in line with a normal Friday. However, the median and percent positive is lower than usual. The second table below summarizes the S&P 500 return over the last two days of the week heading into Labor Day. As you can see, it has a slight bearish lean.

Chart 2

Chart 3 SPX 20 yr

Individual Stocks: Finally, below are lists of the 20 best and worst S&P 500 stocks during Labor Day week over the past 10 years. The stocks are sorted first by percent positive, and then by average return. Nine stocks have been positive nine out of 10 times. Utilities, for some reason, make up a decent share of the stocks on the worst performers table. Two stocks, Frontier Communications Corp (NASDAQ:FTR) and PPL Corp (NYSE:PPL), have been negative the past 10 years during the week of Labor Day. 

Chart 4 SPX best stocks

Chart 5 SPX worst stocks

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