Black Friday is the name given to the first day after Thanksgiving. It is one of the most important retail and spending events in the United States. Every holiday season prognosticators make predictions about the level of sales on Black Friday, and investor confidence may be affected by whether or not those expectations are met or exceeded.

If consumers follow up Thanksgiving by spending a lot of money on Black Friday and retailers show strong numbers, investors might have their first indication that it is shaping up to be a particularly profitable shopping season. This confidence can be reflected in the stock prices of the retailers that post strong sales. Conversely, many take it as a sign of trouble if retailers are unable to meet expectations on Black Friday. Concern over the economy is magnified if consumers are perceived to be reining in their spending. 

Key Takeaways

  • Black Friday is the name given to the day after Thanksgiving, when, traditionally, retailers would be "in the black" for the year; now it signals the biggest day of the important holiday shopping weekend.
  • Cyber Monday is the Monday after the holiday weekend; sales during the five-day period of Thanksgiving through Cyber Monday are seen as reflective of consumer sentiment.
  • Strong sales during this period can benefit retail sector stocks, particularly the stocks of companies that report strong sales.
  • However, the overall stock market and broader investor sentiment are not always impacted by the results of Black Friday, with market participants focused on a variety of economic and political developments.

Millions Shop Thanksgiving Weekend

In 2020, an estimated 186.4 people shopped in stores or online during the period from Thanksgiving through Cyber Monday, according to the National Retail Federation, spending an average of $$311.75 over the five-day period, down 13.9% from $361.90 in 2019. Over 100 million people shopped online for the first time, and the number of online-only shoppers increased by 44% to 95.7 million.

Cyber Monday, the Monday after Thanksgiving weekend, in which consumers go back to work and shop online, is also a notable day for the retail industry; it marks the end of the five-day Thanksgiving weekend shopping period.

Black Friday Weekend and Stocks

Thanksgiving is an important day for a lot of businesses, particularly those in the food industry. However, U.S. stock markets are closed in the U.S. and open for only half the day on Friday. Global markets are open, but stock market trading is unlikely to be affected by Thanksgiving alone because of the importance of the day after.

Black Friday is important because this is the shopping day on which many retailers have traditionally made enough sales to put them in the black for the year. Since many retailers consider Black Friday to be crucial to their business's annual performance, investors look at Black Friday sales numbers as a way to gauge the overall state of the entire retail industry. Economists, based on the Keynesian assumption that spending drives economic activity, view lower Black Friday numbers as an indication of slowed growth.

The stock market can be affected by having extra days off for Thanksgiving or Christmas. The markets tend to see increased trading activity and higher returns the day before a holiday or a long weekend, a phenomenon known as the holiday effect or the weekend effect. Many traders look to capitalize on these seasonal effects. 

A particularly strong or weak Black Friday through Cyber Monday shopping period tends to have a big impact on retail stocks, but may not be significant enough to sway broader stock market sentiment.

Black Friday and Stocks

Many analysts and investors scoff at the notion that Black Friday has any real predictability for the fourth quarter or for the markets as a whole. Instead, they suggest that it only causes very short-term gains or losses. Of note, the best U.S. sector from one week before to one week after Black Friday is retail. From 2007 to 2017, a grouping of S&P 500 retail stocks posted a 5% return, compared to the average 3% return for the S&P 500 over that period. For all 10 years, this basket of retail stocks has traded positively for the 10-day period.  This trend continued has continued with the S&P 500 Retailing Industry Group outperforming the S&P 500 by 1.5% and 0.1% during that period in 2018 and 2019, respectively. This pattern didn't continue in 2020, when the S&P 500 returned 4.1% but the retailing industry group only returned 2.2%.

Holiday Sales 2020

The National Retail Federation (NRF) announced on January 15, 2021 that retail sales over the 2020 holiday season grew 8.3% year-over-year, to $789.4 billion, exceeding NRF expectations. "Online and non-store sales" rose 23.9% to $209 billion. This was more than double the 5-year average year-over-year growth of 3.5%.