How History Says Stocks Will Do From Thanksgiving Until Year End

The stock market has been a big concern for bullish investors lately, as all three major indices have been decimated. Investors remain on the defensive as interest rates remain in flux and as trade-war worries with China persist. It’s caused many to question whether the bull run in stocks is over and whether the economy is on the cusp of a recession.

The rationale is certainly valid. The Federal Reserve may or may not still be on autopilot, hiking interest rates into oblivion. The White House may or may not work out a trade deal with China at the G20 Summit. In fact, further tariffs could come against China if no progress is made. Real estate prices in leading markets continues to stagnant while new home sales and building permit data remains suspect. Multiple sectors are in deep bear market territory, while the S&P 500, Dow Jones Industrial Average, Nasdaq and Russell 2000 are all below their respective 200-day moving averages. Most of FAANG is in or near bear market territory as well.

The cherry on top? How the stock market performed during the week of Thanksgiving.

With markets closed on Thursday and closing early on Friday, it was a short week. But that didn’t stop the S&P 500 from falling 3.8%. While most of those losses were realized on Monday and Tuesday, it was still the fifth-worst weekly performance during Thanksgiving week dating back to 1930.

Wow. Plenty of reasons to be bullish, right?

In fact, maybe that’s the case. 

So Bearish It’s Bullish

Despite the poor performance, there is a silver lining here. According to the data, the S&P 500 has now finished lower during the week of Thanksgiving 36 times since 1930. That’s roughly 40% of the time, spanning almost nine decades. However, the median return for the rest of the year has averaged out to a 2.1% gain.

Now, most investors can acknowledge that a 2.1% gain is pretty futile, even if it does come in only five weeks. However, bulls would breathe a sigh of relief right now if they were to find out that the market was going to finish higher into year-end rather than continue to flush lower. Further, just because that’s the average return, doesn’t mean the results can’t be higher.

We segmented the data even further, looking at years where the stock market was positive on the year going into Thanksgiving week. Of those 36 times where the S&P 500 fell during Thanksgiving week (excluding 2018), 21 of them came when the index was positive for the year. Of those 21 occasions, 20 of them ended up posting positive gains into year-end. The one time it didn’t came in 1964, where the S&P 500 slipped 48 basis points into the end of the year.

What’s more, the years where the S&P 500 was positive on the year going into Thanksgiving week and declined that week, ended the year with an average gain of 4.13%. For the record, the S&P 500 was year-to-date positive going into Thanksgiving week this year.

Each year is full of new circumstances and different obstacles. 2018 is certainly no exception to that. That said, the historical data is on the side of the bulls. At least on this front.

Black Friday, Cyber Monday and the Healthy Consumer

There may be a plethora of reasons to be bearish right now, but consumer spending isn’t one of them. As the unemployment rate and jobs reports continue to put together impressive results, consumers are feeling good. The decline in oil prices — another topic for another day — is making gasoline cheaper. Wages continue to trend higher, putting even more money in shoppers’ pockets.

Our first real test for how consumers are feeling began during the very week we just observed. With pre-Black Friday deals starting on Thanksgiving and running all the way through Cyber Monday, U.S. consumers have been loading up on gifts at a record pace.

Adobe Analytics “tracks sales data from 80 of the top 100 internet retailers in the U.S., including Walmart and Amazon,” according to CNBC.  

According to Adobe Analytics, shoppers spent $6.22 billion online during Black Friday, a new record. That represents more than 23% year-over-year growth and comes even after consumers spent $3.7 billion the day before. While some economists thought the tough comps in 2018 would equate to flat or negative growth compared to 2017, that doesn’t seem to be the case anymore. Many are now expecting year-over-year growth, a positive amid a sea of negativity for corporations.

On Cyber Monday, that shopping momentum continued. Consumers doled out over $7.9 billion on the day, up almost 20% from the prior year. This also topped the $7.8 billion estimate that came ahead of Monday, following the rosy results from the prior few days.

So while the Fed or worsening trade wars could certainly derail the bullish train just now leaving the station, there is reason for some optimism going into December. The question will turn to whether bulls can run with it … or if momentum will fizzle out.