The Thanksgiving And Black Friday Effect In The Stock Market

Last Updated on November 19, 2021 by Oddmund Groette

The Thanksgiving holiday is right around the corner. Is this a good seasonality to be long stocks?

The Thanksgiving and Black Friday effects are very strong. We did multiple backtests from 1960 until October 2021 on the S&P 500, and it turns out the Thanksgiving effect is more reliable the closer we get to Thanksgiving. In this article, we backtest four different strategies around this holiday.

What are the Thanksgiving and Black Friday effect?

Thanksgiving is always on the fourth Thursday in November and it began as a day of blessing for the harvest in the preceding year. The markets are closed on the day, and the next day (Friday) is only a half-day and markets close at 1 PM ET. The Friday after Thanksgiving has over the last couple of decades developed into a shopping bonanza and is called Black Friday.

The stock market tends to perform well during holidays. This applies to most holidays throughout the year. In a previous article, we measured the holiday effect for all the US holidays.

One of the best performers in our holiday article is the Thanksgiving effect. Let’s repeat how we tested the Thanksgiving effect in our holiday article:

Thanksgiving effect strategy no. 1:

  • We go long at the close the Monday prior to Thanksgiving.
  • We exit at the close on the first trading day of December.

Since 1960, the S&P has returned this equity curve based on compounding 100 000:

The average gain per trade is 0.71%, the win ratio is 62%, the profit factor is 2.24, the CAGR is 0.68%, and time spent in the market is 2.72%.

These are pretty good numbers. Let’s test another twist:

Thanksgiving effect strategy no.2:

  • We go long at the close the Friday prior to Thanksgiving (one week before Black Friday).
  • We exit at the close Black Friday.

The equity curve looks like this:

The average gain per trade is 0.,64%, the win ratio is 69%, the profit factor is 2.4, the CAGR is 0.64%, and time spent in the market is 1.58%.

The performance from Friday to Monday in the Thanksgiving week is poor. Let’s test another twist:

Thanksgiving effect strategy no.3:

  • We go long at the close of Monday in the Thanksgiving week.
  • We exit at the close Black Friday.

The equity curve looks like this:

The average gain per trade is 0.6%, the win ratio is 75%, the profit factor is 3.3, the CAGR is 0.58%, and time spent in the market is 1.17%.

Thanksgiving effect strategy no.4:

  • We go long at the close of Tuesday in the Thanksgiving week.
  • We exit at the close Black Friday.

The equity curve looks like this:

The average gain per trade is 0.56%, the win ratio is 84%, the profit factor is 4.5, the CAGR is 0.55%, and time spent in the market is 0.8%.

From the above backtests it seems the best risk/reward is to enter at the close of Tuesday in the Thanksgiving week. However, the strategy seemed to perform better a couple of decades back.

Does it matter if the price performance prior to Tuesday has been weak or strong?

No, if we test with different price performance criteria prior to Tuesday, it seems the strong performance is still there no matter what.

Order Amibroker code:

Testing seasonalities can sometimes be difficult. If you want to have the Amibroker code for the Thanksgiving effect, you can order it here:

Thanksgiving Effect: conclusion

The Thanksgiving effect is strong and has proved to be a reliable seasonality. The closer we get to Black Friday, the more reliable is the effect.

 

Disclaimer: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.