History Shows Holiday Trading Favors Bulls – Morning Brief

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Friday 25 November 2022

Today’s newsletter is here Jared Blikr, a market-focused reporter on Yahoo Finance. Follow him on Twitter @SPYJared. Read this and other market news wherever you are Yahoo Finance application.

Rise and Shine Bargain Hunters!

For those who have slept off a tryptophan hangover and are Not rushing headlong into a phalanx of Black Friday deals, half a day’s worth of potential “deals” awaits in the stock market.

Yes, volume should be low and volatility has already eased off from high levels for the year ahead of the holidays.

But the truncated Black Friday session has offered some opportunities over the years for those investors willing to sneak up to the markets table.

SAN JOSE, CA – NOVEMBER 26: Black Friday shoppers are seen in the reflection of a store window as they walk through Westfield Oakridge Mall in San Jose, California on Friday, November 19, 2018. 26, 2021. (Photo by Dai Sugano/MediaNews Group/The Mercury News via Getty Images)

Just last year, the post-Thanksgiving session saw the Dow suffer its worst day of the year, when a new COVID variant dubbed omicron hit the scene for the first time. WTI Crude Oil tumbled 13% on Friday, the biggest drop since trading lower in the early days of the pandemic.

If we turn the market clock back to Thanksgiving 2009, while the world was still recovering from the global financial crisis, we find much more volatility to get around.

Early on the morning of Black Friday 2009, risk markets were selling hard, as a deal to bail out Dubai’s sovereign debt hung in the balance. US stock futures fell 2% as Europe began its trading day. But an 11th-hour deal has piqued investors’ appetite for risk. The day ended in green and the lows would not be revisited for over two months.

And in 2014, a surprise deal by OPEC to keep oil production levels unchanged pushed oil prices to multi-year lows during the Thanksgiving and Black Friday trading sessions.

To be fair, the outsized price movement on these Fridays is the outlier. The norm is a low-volume, low-range day that is part of a larger, bullish seasonality leading into February.

Jeff Hirsch of The Stock Trader’s Almanac has been writing about these trends for decades. (His father, Yale Hirsch, first discovered and wrote about the Santa Claus Rally in 1972.)

Hirsch found November through January to be “the best time in three consecutive months of the year.” This year, that period also falls into what Hirsch calls the “sweet spot” of the four-year presidential cycle, from the fourth quarter of the interim year to the second quarter of the pre-election year.

Putting it all together, here are the stats for a long trading running from the Tuesday just before Thanksgiving through the second trading day of the new year, which includes the narrowly defined Santa Claus Rally.

Since 1950, the S&P 500 has averaged a 2.65% gain over this period, an average increase of 2.40%. During the average winning period, the index rises by 3.78% and falls by 2.01% on average, when the market falls. For the Russell 2000, the average gain is 3.38% and the average return is 3.57%; during the average winning period, the index gains 4.98% and loses 2.69% during the average losing period.

During this period, the S&P 500 has a win rate of 80.6% and the Russell 2000 a win rate of 79.1%. Not bad for bulls seeking consolation in this year’s market.

Hirsch notes that this is an unusual year given the 15.5% decline seen so far for the S&P 500 this year. And while the major indexes are unlikely to recoup losses so far this year, bullish seasonality still exists.

As Hirsch writes: “The fact that November 2022 has come so far is supportive for continued upside.”

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