No days off for the market

Many people, including traders and investors, take time off around Thanksgiving, but that doesn’t mean the markets are entirely in a food coma around the holiday. Yes, it’s generally a slow news week, but the US stock market has exhibited some interesting historical patterns before and after everyone’s favorite excuse to overeat.

And they might not be what you’d expect. Given it kicks off the holiday shopping season (which is expected to be gangbusters this year1) and falls within the stock market’s historically strong November-April seasonal window, it might be surprising that the US stock market has had a tendency to underperform during the week after Thanksgiving.

Take a look at the chart below. It shows the average daily returns for the S&P 500 index (SPX) for the five days before and after Thanksgiving in the 53 years from 1964-2016. The top half of the chart shows each day’s return, while the bottom half shows the percentage of times each of these days closed higher.

S&P 500 (SPX) avg. daily returns (1964-2016).

Source: CME Group (data)

The chart shows a couple of interesting trends, and a few particularly conspicuous days:

● As a whole, the five days before the holiday were, on average, more bullish than bearish—especially the day before Thanksgiving, which closed higher 42 out of 53 years (79% of the time). For comparison, from 1964 through 2016, the SPX average daily return was 0.03% and 54% of days closed up. Also, there were only two times (1994-1996 and 2000-2001) this day closed lower in two or more consecutive years.

● The five days after the holiday were more mixed, with two notable down days—the second and fifth days after Thanksgiving (i.e., the following Monday and Thursday). Two days after Turkey Day has indeed been something of turkey—a -0.39% average return and a higher close in only 19 of 53 years (36% of the time). The day after Thanksgiving (Friday), however, was second only to the day before the holiday in highest average gain and highest percentage of up closes.

So, overall, the market has tended to get a bump one day before and one day after the holiday, but then frequently gives it back the Monday after Thanksgiving. Perhaps not what many people would expect, given the Friday after Thanksgiving is an off day for many workers (even those who show up to the office), and the markets have for many years closed early. Most people are back in the saddle on Monday, but that turns out to be the weakest day around the holiday. Check out 2016 as an example:

S&P 500 (SPX), 11/1/16 – 12/9/16

Source: OptionsHouse

One other interesting observation: The basic pattern of the day before Thanksgiving and the two days after has been fairly stable over time. In the most recent 25 years, for example, the average gains on the day before and after the holiday weren’t as large, and the average decline the following Monday wasn’t as large, either. But the basic pattern remained intact.
December E-Mini S&P 500 futures (ESZ7), 9/19/17 – 11/21/17

Source: OptionsHouse

The December E-Mini S&P futures (ESZ7) were up fairly strongly yesterday (two days before Thanksgiving), pushing out of their recent consolidation to a new high. The market’s immediate trend and prevailing catalysts will determine the path it takes at a given time, but the dynamics surrounding market holidays make them food for thought to say the least.


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1 Early forecast calls for stronger holiday season for retailers. 9/20/17.