Personal Investment: How Black Friday affects the stock market

Even if you do not celebrate the festive season or shop in the Black Friday sales, it’s still important to know that these two events can impact your investments. In this blog, we have pulled together factors to how Black Friday affects the stock market and why.

Rather than discussing sometimes questionable Black Friday deals, our focus is on the impact this sales period can have on your investment portfolio. Even if you do not buy into Black Friday, it will likely impact your investment in the stock market. In most cases, the impact is positive due to the significant boost in spending during this period.

What is Black Friday?

It is thought that the stock market crash of September 1869 gives Black Friday its name. Although for most, Black Friday is simply known for its huge savings across most retailers and services. In recent years, what was once one day of sales transpired into a weekend or week-long sale, even with a brand new day called ‘Cyber Monday’ thrown into the mix.

In the last few years, these sales have seen retailers and e-commerce a huge spike in sales and traffic – with a boost in both transactions and average spending. In the UK, it is estimated that consumers will spend around £4.8 billion across Black Friday and Cyber Monday in 2021 [1].

How Black Friday affects the stock market

Although Black Friday sales tend to cause a lot of excitement to most investors, the short-term sales and profitability figures created will not have a lasting effect. So, for example, the share price in a large retailer such as Amazon may go up temporarily around this period, but there’s no logic to suggest it’ll stay that way for the rest of the year.

Market Watch has analyzed how the US’s largest retail index – the S&P retail Select Index (SPSIRE) – fared against festive and Black Friday trends. The analysis went back to 1999 when SPSIRE was created and found that there is a strong inverse correlation between the immediate reaction of the stock market and Q4 performance [2].

What this means (according to historical data) is that if the markets spike during Black Friday and Cyber Monday, they’ll typically drop for the rest of Q4. However, if markets fall during this period, this pattern is the opposite, and historically, they would go up for Q4.

Although the data suggests this trend, past performance isn’t a reliable indicator of future performance. Remember that funnily enough, the markets also crash every time Oreo releases a new filling! Crazy.

The researcher at Market Watch believes this pattern exists due to humans overreacting. Entering the festive period positively brings hope and anticipation, but if that fails to materialise, we then overreact on the downside and vice versa.

If you’re trying to use Black Friday or the festive period as a measure of market volatility or as an indicator for future stock market movements, you may want to re-examine this decision.

How does the festive period impact the stock market?

So we have already addressed how Black Friday affects the stock market, but we could also dig deeper into why. There are a few reasons, and it’s not only the festive period. Let us explain.

Like many things in life, seasonal effects can affect the stock market. Sometimes weekly, monthly, yearly, or even daily in some cases. For example, during certain seasons or times of the year, such as the summer holidays, you may have fewer traders active, while at the tax year-end, you may have significantly more. This change in the number of traders can positively or negatively affect the volatility of your share prices.

Share prices could also change just because traders expect rises or dips. This makes these changes, as the price of a share is (in part) determined by how much someone is willing to pay for it.

It is important to remember that seasonal and time-specific stock trends are not definite – so they should never be the main factor in your investment decision – especially when planning for the long term.

What could I do with my investments?

Unless you’re a day trader, any impact that Black Friday and the festive period have on your investments should be considered part of your long-term investment journey.

Diversifying your portfolio means your investment types will vary, meaning big changes or spikes in the retail sector should not impact your investments as much as you may think.

For example, while Black Friday might impact retail share prices, it should not impact industries such as property or travel.

Thinking further ahead

Investing for the long-term always means factoring in peaks and troughs along your investment journey. If your investment journey stresses you out, focus more on your longer-term goals. Why did you start your investment journey in the first place? Don’t lose sight of the bigger picture by obsessing over how Black Friday affects the stock market.

Working with a reputable investment expert

Worried about your investments after Black Friday and the Festive Period? Consider finding a trusted investment expert. Our experts sweat the details while you sit back with confidence in the growth of your wealth.

Our partners can help you pick your investments, monitor the news, analyse market data, and, if necessary, make changes to keep your investments on track with your desired risk level. By trusting an expert, you can enjoy the festive period with peace of mind that your investments are in good hands.

Contact GSB today to enrich your life investment journey.

Ross Whatnall

Ross Whatnall is CEO and co-founder of GSB and a highly experienced private client director. Ross holds many insurance and investment management qualifications, including CISI, CII, LIBF and CFA. He started his career in private banking with HSBC in the UK before moving to the UAE in 2013 to focus on serving his private clients.

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