Business

Opinion: How stock market investors can play Black Friday and Cyber ​​Monday sales reports

Stock market investors often overreact to initial reports of Black Friday and Cyber ​​Monday.

At a minimum, that means you should ignore those reports. And if you’re the opposite, a brave short-term trade might be to bet that the market after Cyber ​​Monday will reverse the direction it took in the first two trading sessions after Thanksgiving.

I came to those conclusions when I analyzed the stock market reaction on Black Friday and Cyber ​​Monday. I recorded a strong inverse correlation between its net profit during those two sessions and its performance after Cyber ​​Monday through the end of the year.

I have written about this reversal pattern before and it continues to hold up. Taken last year, when Black Friday traffic at US stores drops 52%. Although online sales did cause some declines, the S&P Retail Options Industry Index
SPIRE,
-1.43%

still down 1% in two sessions Black Friday and Cyber ​​Monday. But then a reversal happened: After Cyber ​​Monday through the end of 2020, the index was up 7.4%.

Of course, one year’s experience is not a stereotype. The accompanying chart, below, reports the averages for all years since 1999, when the index was created. There is a difference of 6.3 percentage points between the two means, which is statistically significant.

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I also found evidence of this reversal pattern in the Dow Jones Industrial Average
DJIA,
+ 0.55%
,
although it is weaker for this broad index than for the retail sector in particular. Consider the performance of the DJIA since 1981, according to Wikipedia is the earliest known reference to Black Friday as the day when retailers move out of the “red” color of the year and into “black”.

As the DJIA in its first two trading sessions after Thanksgiving…

DJIA average return from Cyber ​​Monday to year end

Fall

2.3%

grow

1.8%

Note carefully that for the DJIA, this reversal pattern is only slightly statistically significant (at the 93% confidence level, not the 95% level that statisticians typically use when determining whether a pattern is it genuine or not). So these stats don’t justify throwing caution with the wind with any year-end bets, especially at the overall market level.

The main investment lesson is to sit on your hands as you read and listen to the non-stop analysis of the original retail reports. At a minimum, those initial reports are worthless, and maybe even worse, worthless.

The broader investing lesson is that investors often overreact. To disappointing news, they will react by thinking that the world is about to end, and to better-than-expected news, they will conclude that happy days are here again.

Rarely is either of these extremes actually the case. This is why sitting on your arms is helpful advice almost any time of the year, not just during and after Thanksgiving.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be contacted at mark@hulbertratings.com.

https://www.marketwatch.com/story/how-stock-market-investors-can-play-black-friday-and-cyber-monday-sales-reports-11637758997?rss=1&siteid=rss Opinion: How stock market investors can play Black Friday and Cyber ​​Monday sales reports

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