Introduction
Black Friday holds a significant place in both the stock market and the world of retail. Its historical roots can be traced back to the stock market collapse of 1869, caused by American investors Jay Gould and James Fisk’s failed attempt to control the gold market. However, the modern concept of Black Friday emerged in the 1940s as a way to attract people to stores the day after Thanksgiving. The term “Black Friday” originally referred to the tendency of the day to contribute to traffic accidents. Over time, it came to represent the hope that retailers’ sales would turn profitable for the year, putting them “in the black.”
The Influence of Black Friday
Black Friday has a significant influence on various aspects, including retail spending, the economy, and the stock market. The impact of Black Friday on consumer behavior and retail spending is undeniable. The event is widely promoted as an opportunity to save money across a wide range of products, leading to increased online sales and stampedes in retail outlets as consumers eagerly seek out bargains. In 2018, online spending during Black Friday in the US reached a staggering $6.22 billion, marking a 23.6% increase from the previous year. It is worth noting that Black Friday consistently generates higher retail sales volume than any other date throughout the year, with only one exception.
The influence of Black Friday on the economy is subject to debate. Some argue in favor of its positive impact, believing that increased consumer spending drives economic activity, injects more money into circulation, and potentially stimulates overall economic growth. This perspective becomes particularly relevant during periods of economic recession when increased consumer spending can be welcomed. However, others hold the view that Black Friday’s influence is insignificant, with only short-term effects observed. Lessons from previous years indicate that many retailers experience poor sales figures once the discounting period ends. Moreover, prolonged deep discounts can erode profit margins, potentially leading to staff cuts, increased unemployment, decreased income tax receipts, and a higher welfare burden. These factors contribute to an argument for Black Friday having a net negative economic effect.
The influence of Black Friday on stock markets and individual stocks is not a straightforward matter. Retail stocks can be expected to rise if sales expectations are met, while unexpectedly weak sales suggest poor consumer confidence and a fragile underlying economy, leading traders to go short. However, it is essential to recognize that a company’s sales performance alone does not determine its profitability or overall financial health, factors that traders should carefully consider when selecting stocks. Analyzing the impact of past Black Fridays on financial markets provides insights into the trends that traders might observe following this significant date.
Black Friday and Stock Market History
While the origins of Black Friday lie in the stock market crash of 1869, the modern interpretation of Black Friday demonstrates a positive correlation between the retail sector’s performance and the Black Friday period. Analyzing the S&P 500 over a ten-year span, Bloomberg data reveals that retail stocks achieved a 5% return during the week leading up to Black Friday through the week following it, surpassing the average 3% return. However, it is crucial to note that retail sub-sectors may vary significantly, and the rise of online sales poses a challenge to brick-and-mortar reliant stocks. To gain a comprehensive understanding of the market, it is essential to consider additional fundamental factors that can impact stock performance.
Black Friday Retail Stock Performance: A Snapshot
Examining the performance of major global retail stocks during the Black Friday period in 2018 provides valuable insights. Amazon experienced its most successful shopping day in history on Cyber Monday, with customers ordering over 18 million toys and 13 million fashion items on Black Friday and Cyber Monday combined. As a result, Amazon’s share price rose by 11% between November 16 and November 30. On the other hand, Target saw a dip of 12% in its share price over the same period, which can be attributed to the broader decline in the stock market due to trade wars and global growth concerns. This highlights the significance of considering a range of fundamental reasons while analyzing stock movements during the holiday season.
Key Considerations When Trading Stocks on Black Friday
Traders must carefully evaluate various factors when engaging in stock trading during the Black Friday period. Stock market liquidity plays a crucial role as trading during the holiday season, including Black Friday, can distort liquidity levels. With fewer traders actively participating, liquidity can dry up, leading to larger price swings. Automatic triggering of stop losses and hasty position closures contribute to these increased volatility levels. Considering fundamental factors can provide insights into consumer spending patterns and help traders evaluate retail stocks. For example, lower gasoline prices and robust employment figures may indicate increased spending power and the likelihood of meeting company sales expectations. However, it is vital to be aware of numerous other factors that can overshadow any moves caused by consumer sentiment. The ongoing shift from brick-and-mortar to online sales is another significant aspect to consider, with companies like Amazon and Best Buy presenting attractive online shopping deals during the holiday season. Additionally, traders should keep in mind that earnings reports, which provide a clearer picture of a company’s performance, are typically released in January.
Stock Market Trading Schedule on Black Friday
On Black Friday, the stock market operates on a modified schedule. While the market opens at the usual time of 9:30 ET, it closes at 1 pm. Additionally, the stock market remains closed for the entire Thanksgiving day.
Further Reading on Stocks and Trading Major Indices
If you want to enhance your understanding of stocks and trading major indices, delving into the following resources can be highly beneficial:
– Beginner’s Guide to Stock Trading: This comprehensive guide provides essential information for individuals new to stock trading.
– Types of Stocks: Gain insights into different types of stocks and their unique characteristics.
– How to Pick Stocks: Learn effective strategies for selecting stocks that align with your investment goals.