Historical Market Moves on Black Friday

Although post-Thanksgiving-Day shopping has been a recognized phenomenon since the 1950s, the first time the term "Black Friday" appeared in print, used as a shopping-day reference, was in 1966. Maybe 1965 was an especially frenetic year for shoppers since it was the first year that G.I. Joe became a sought-after Christmas gift. That toy went on to account for more than 50% of Hasbro, Inc.'s (HAS) revenue that year and the next, so that seems like it might be a good year to start tracking results of the stock market's performance on Black Friday.

The stock market's performance on that day, which typically operates on an abbreviated session schedule, has never been thought to be particularly noteworthy, but perhaps it should be. When you consider that the only people who trade that day must really want to, you have to wonder whether that particular group of participants has any kind of bias to activities. What follows here is an attempt to determine whether the day's performance each year since 1965 holds any information that differs in comparison to everyday trading results.

The first observation that jumps out from reviewing the charts of the S&P 500 index (SPX) is the frequency with which the day tends to close higher compared to the previous session's close on the Wednesday before Thanksgiving. This occurs an eyebrow-lifting 70% of the time. For comparison, State Street's S&P 500 index-tracking ETF (SPY), has closed higher 53% of all days throughout the past 26 years since its inception.

Chart showing up and down days for the S&P 500 on Black Friday

The Black Friday Indication

While this day does tend to close higher more often than random results might suggest, another observation is that the relative change of the index may be an indicator of how the rest of that particular year will turn out. If the market closes in positive territory, but only mildly so, then this indication has historically not boded well for the remainder of the year's performance.

The figure below specifies the return of the S&P 500 from Black Friday through the end of December for each year where the index closed positive but with a gain of less than 0.3%. The average return for the final weeks of those years is a 0.28% loss. That's not particularly inviting. However, when the day closes higher or lower than this range, the results become more interesting.

Neutral days

Chart showing the year-end return after neutral days

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Trading the Black Friday Indication

It turns out that if Black Friday closes more than 0.3% higher compared to the previous Wednesday's close, the returns for the remainder of the year have been a good bit more desirable. The figure below gives the detail. The average return of the final weeks of these years is over 1.5% (more than double the average monthly gain for the index).

However, a more surprising result occurs when the markets actually close lower for the day. In those years, the market actually gains even more ground in its closing weeks (the detail is shown in the second figure below). The average return for years when Black Friday trades down from the previous day is nearly 2.5%. A cautionary note is that, although the majority of these years trade positively, the down years are the worst of any recorded since 1965. 

Positive days

Chart showing the year-end return after positive days

Negative days

Chart showing the year-end performance after negative days

The Bottom Line

Comparing the one-day performance of the S&P 500 index as it trades on Black Friday may be a useful indicator of trading activity through the end of the year. Diligent researchers will notice that the sample size of this data is perhaps too small for any conclusions to be robust. However, the persistence of positive returns compared to an average trading day suggests that there may be something worth studying about the participation of traders on Black Friday.

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