Thanksgiving Week: Does The US Stock Market Offer Up A Good Deal? 

TradingKey - With the US set to celebrate Thanksgiving this week, the largest stock market in the world will be closed for trading on Thursday (28 November). Everyone will be visiting family and likely trying to nab good deals via “Black Friday” and “Cyber Monday” sales.

These are sales periods put on every year in the US – around Thanksgiving – that aim to lure shoppers to grab massive discounts on everything from clothes to large-screen TVs. But with the S&P 500 Index hitting all-time highs recently, does it offer investors a good deal this week?

By taking a look back at the historical returns of the stock market for the Thanksgiving week in the US, investors can get an idea of whether US stocks are tempting for buyers right now.

Seasonality suggests strong returns this week

According to note by technical strategists at Bank of America (BofA), the Thanksgiving week can indeed be a rewarding one for investors.

More importantly, the week is on the cusp of the period before Christmas and that has sometimes proven to be a beneficial time to be trading markets. 

The analysts noted that the S&P 500 Index tends to fall in the week after Thanksgiving but that this short-lived dip is a prelude to a “year-end rip” higher in stock markets.

The S&P 500 has an even better record in years where there are presidential elections (such as this year), with the key index having increased 60% of the time and delivered an average return of 0.28% during the Thanksgiving week.

Meanwhile, the median gain – during presidential election years – has been 0.46% for all Thanksgiving weeks going way back to 1928, nearly a century ago.

Falling before rising into year-end

While the Thanksgiving week gains could be positive for investors, the week after (particularly in presidential election years) have been less than kind.

That’s because the week after Thanksgiving, the S&P 500 Index has fallen just over two-thirds (67%) of the time with an average loss of 1.12%, according to BofA.

But if investors have been brave and taken the plunge to buy post-Thanksgiving (on the dip), they’d be thanking themselves. That’s because the S&P 500 has been up 75% of the time from Thanksgiving into the year end.

The average return during these period was a very respectable 1.38% while the median return was 1.60%.

How to position before year-end

Investors will inevitably want to take a risk by buying on any dips in the next week or so as President Trump positions his cabinet for January. 

No doubt, the potential for a “Santa Clause rally” into the end of 2024 is still very much a possibility as the US economy remains strong, inflation is low and the US Federal Reserve (Fed) looks set to cut interest rates one more time when it meets on 17-18 December.

With Black Friday and Cyber Monday sales going on this week and into early next week, any retail sales data points coming out from the big retail platforms will also be taken as a sign of the health of the US consumer. If the holiday shopping season and Black Friday sales period go well, then investors could drive the stock market higher into the end of 2024.

Regardless, it’s set to be an interesting five weeks until the end of the year and investors should remain ready to be opportunistic and take advantage of any volatility in markets in the upcoming week.