You should ignore the initial reports about the success of retailers’ Black Friday and Cyber Monday sales events. In fact, if you’re a gutsy contrarian investor, you should consider betting that retail stocks will rise for the next several weeks if they decline over the two post-Thanksgiving trading sessions.
The stock market’s post-Thanksgiving tendencies are summarized in the table below, based on the performance of the S&P Retail Select Index XX:SPSIRE since December 1999, when the index was created. Particularly striking is the retail stocks’ performance until Christmas if the sector falls over the first two post-Thanksgiving trading sessions.
|
S&P Retail Select Index… |
Average S&P Retail Select Index subsequent gain through Christmas |
|
On balance rises on Black Friday and Cyber Monday |
-0.3% |
|
On balance falls on Black Friday and Cyber Monday |
+2.6% |
|
All years since December 1999 |
+0.3% |
The statistical strength of the differences shown in the table is weak, admittedly, given that there’s just 24 years of data for the S&P Retail Select Index. So if you are tempted to make a contrarian bet that the sector’s initial post-Thanksgiving direction will reverse, commit only a small amount of money.
The broader investment lesson to take from the market’s reaction to Black Friday and Cyber Monday sales is that investors typically overreact to widely-followed news events. More often than not the market in subsequent weeks corrects these overreactions.
This isn’t just a post-Thanksgiving phenomenon. Consider a portfolio that, in each month since 1926, held the 10% of stocks with the worst returns in the immediate prior month. Based on data provided by Dartmouth College professor Ken French, this portfolio produced a 12.8% annualized return through the end of 2024’s third quarter. That’s 8.9 annualized percentage points better than a portfolio that each month held the 10% of stocks with the best returns in the immediate prior month.
To be sure, these returns reflect hypothetical portfolios that paid no transaction costs, which would eat up the lion’s share of this percentage point difference. But these results nevertheless illustrate investors’ tendency to overreact. If you were forced to choose which stock will do well over the next 30 days, you’d have a greater chance of winning if you bet on the stock that lost the most over the previous month than the one that gained the most.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
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