Stocks Insider: Black Friday, Cyber Monday and Christmas Shopping

As we head into the final month of the year, retailers will be gearing up for what is expected to be nothing less than a shopping frenzy. It is at this time of year that retailers will know whether to expect a boom or bust for the year. The holiday shopping season officially kicks off on Black Friday – the day after Thanksgiving. In reality, the holiday shopping season gets underway well before that. For investors, Black Friday is used to gauge the overall health of the US economy and expectations are running high. In the short term, the equities markets will soar if Black Friday turns out to be a resounding success and the markets will fall flat if Black Friday turns out to be a major disappointment. But many analysts are cautioning that it’s foolhardy to read too much into Black Friday and Cyber Monday results.

Investors looking to spot overall trends for the holiday shopping season have learned to look beyond Black Friday and Cyber Monday. This is because the empirical data suggests that short-term price movements generated by market sentiment on Black Friday and Cyber Monday tend not to have a positive correlation with overall December retail sales figures. In fact, analysis of the change in the actual performance of the Dow Jones Industrial Average vis-à-vis Black Friday and Cyber Monday shows that actual overall December performance was on par with pre-Black Friday and Cyber Monday highs. The data appears to suggest that the bullish mood leading into Black Friday and Cyber Monday is also evident in overall December market sentiment.

Holiday Shopping Demographics and Market Sentiment

There is a clear divide between how different sectors of society shop on Black Friday. The more affluent shoppers tend to stay away from discount retailers and mid-priced chains such as Target and Kmart and Wal-Mart Stores Inc. This year, many of these retailers are opening their doors earlier in an attempt to lure in more shoppers to drive up their revenues. High net worth individuals tend to benefit from their investments on the stock markets this time of year and how they are able to successfully speculate (in the short-term) on equities like Google (GOOG), Apple (AAPL), Nordstrom Inc (JWN) and Walmart (WMT) et al. Low income individuals rely on holiday shopping savings to purchase more of the goods and services they require. In both instances, the effect on the markets is positive – for the short-term. According to the National Retail Federation, spending will increase to $617 billion through November and December. However PWC analysts anticipate a drop in overall household expenditure from $735 (2013) to $684 (2014). According to the IRS, 67% of American shoppers earn less than $50,000 p/annum and it is these families that retailers are targeting.

The Impact of Black Friday on the Stock Markets Black Friday is the day that retailers move from the red into the black. Every year since 2003, retailers have seen a marked increase in sales volumes compared to any other date on the calendar. It should be noted that Black Friday has a temporary effect on the stock markets. For example back in 2011, the Dow Jones rallied by almost 300 points on Cyber Monday on the back of strong retail sales on Black Friday. However as pointed out earlier, there is no correlation between the performance of the retail sector on Black Friday and Cyber Monday and the remaining 30 shopping days in the year. In fact, an inverse relationship was found whereby strong performance over the Thanksgiving holidays was followed by week stock performance in the remainder of the year. The short-term effect is real and the relationship is generally very bullish heading into the Thanksgiving weekend.

Author:.

Brett Chatz is a graduate of the Economics and Management Faculty of UNISA University (South Africa) and he completed post-graduate studies at the University of Haifa. He is a published author (Serum), financial columnist & cricket writer. Nowadays, Brett writes sound financial advice on Canada's leading credit cards comparison portal, GreedyRates.ca.

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