Will Black Friday Be Boom or Bust?

Recent history suggests that stocks always get a nice boost from Black Friday. Will it happen again this year with stocks already at all-time highs?
Over the last five years, the S&P 500 has risen an average of 4.4% in the month that follows Black Friday. Even in 2008, during the depths of the U.S. recession, the market got a nice 2.5% bump from the busiest shopping weekend of the year. Given that history, a market boost in the next month seems like a foregone conclusion.
This year, however, could be different.
For starters, there’s seemingly not much room left for stocks to climb. All three major U.S. indices are at or near all-time highs. The S&P 500 is currently trading at close to 20 times trailing earnings, higher than at any point since January 2010.
Another factor working against a Black Friday rally is this year’s rather modest sales expectations. Last year, Black Friday sales grew 13% from 2011. In 2011, sales were up 16% from the previous year. This year expectations are more muted: the National Retail Federation is forecasting a 3.9% sales increase, while ShopperTrak is predicting just a 2.4% increase.
Although in-store sales declined slightly last year, that was more than offset by a 20.7% increase in online sales. Cyber Monday – the Monday following Thanksgiving – has become an extension of Black Friday weekend. On that day last year, sales grew 4.3%. That number is expected to dip to 3.7% growth this year.
Perhaps the biggest threat to another Black Friday rally is the calendar. November 28 is the latest possible date on which Thanksgiving can fall. That means there are six fewer shopping days – and one less shopping weekend – between Thanksgiving and Christmas. Because most people don’t start their holiday shopping until after Thanksgiving, fewer days in between the holidays means less business for retailers.
Still, no matter how you slice it, the fact is that Black Friday is big business for America’s retailers.
The day after Thanksgiving has been the No. 1 shopping day of the year for 10 years running. Black Friday attracts the largest number of shoppers and tallies the largest sales figures. Last year total sales reached a record $11.2 billion. This year 140 million Americans are expected to venture out to stores on Black Friday weekend.
Plus, December is historically the best month for stocks, with the S&P 500 gaining an average of 1.7% since 1950. The Nasdaq performs even better, rising 2% on average since 1971.
If Black Friday sales are as underwhelming as predicted, Wall Street may not react well. At this point, investors may need to be truly wowed for the usual Black Friday rally to occur. That said, a collapse during the best month of the year for the U.S. economy seems highly unlikely. The worst December performance ever by the S&P was a 6% drop-off in 2002. No other month has such a “high” historical low.
So even if Black Friday sales fall short, don’t expect the collapse analysts have been clamoring for to occur in the next month. A pullback may be coming soon. But not in December.
Black Friday’s impact on the U.S. economy is profound. Its impact on the stock market is more difficult to quantify. At the least, Black Friday is the jumping-off point for the best month on Wall Street.
We’ll see if that’s the case again this year.

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