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History shows holiday trading favors the bulls: Morning Brief

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Friday, November 25, 2022

Today’s newsletter is over Jared Blikre, a reporter focused on the markets at Yahoo Finance. Follow him on Twitter @SPYJared. Read this and more market news along the way Yahoo Finance app.

Rise up and shine deal hunters!

For those who have slept off their tryptophan hangover and are not still headlong into a phalanx of Black Friday deals, wait half a day for potential “deals” in the stock market.

Yes, volume is expected to be low and volatility has already eased from the year’s highs heading into the holiday season.

But the curtailed Black Friday session has opened up a number of opportunities over the years for investors willing to go to the market table.

SAN JOSE, CA – November 26: Black Friday shoppers are seen in the reflection of a store window as they walk through the Westfield Oakridge Shopping Center in San Jose, California on Friday, November 26, 2021. (Photo by Dai Sugano/MediaNews Group/The Mercury News via Getty Images)

It wasn’t until last year, during the post-Thanksgiving session, that the Dow had its worst day of the year, when a new strain of COVID called omicron first hit the scene. WTI crude crashed 13% that Friday – the biggest drop since negative trading in the early days of the pandemic.

If we turn back the market clock to Thanksgiving 2009, while the world was still reeling from the global financial crisis, we find much more volatility.

On the early Black Friday morning of 2009, risk markets were selling hard as a deal to save Dubai’s sovereign debt was at stake. US stock futures fell 2% as Europe began its trading day. But an eleventh-hour deal fueled investors’ risk appetite. The day was closed in green and the lows would not be visited again for more than two months.

And in 2014, a surprise deal from OPEC to maintain oil production sent oil prices to multi-year lows during the Thanksgiving and Black Friday trading sessions.

To be fair, outsized price movement is the outlier on these Fridays. The norm is a low volume, low range day that is part of a larger, bullish seasonal trend leading into February.

Jeff Hirsch of The Stock Trader’s Almanac has been writing about these trends for decades. (His father, Yale Hirsch, first discovered and wrote about the Santa Claus Rally in 1972.)

Hirsch has found that November to January is “the best consecutive three-month period of the year.” This year, this period also falls within what Hirsch calls the “sweet spot” of the four-year presidential cycle — from the fourth quarter of the interim year through the second quarter of the pre-election year.

All things considered, here are the stats for a long trade from the Tuesday just before Thanksgiving to the second trading day of the new year, which includes the narrowly defined Santa Claus Rally.

Since 1950, the S&P 500 has averaged 2.65% gains over this period, with an average increase of 2.40%. During the average to win period, the index has risen an average of 3.78% and fallen 2.01% when the market falls. For the Russell 2000, the average gain is 3.38% and the median return is 3.57%; during the average gain period, the index gains 4.98% and loses 2.69% during the average loss period.

During this period, the S&P 500 has a win rate of 80.6% and the Russell 2000 has a win rate of 79.1%. Not bad for bulls looking for some comfort in this year’s market.

Hirsch notes that this is an unusual year given the 15.5% decline seen so far this year for the S&P 500. And while the major indices are unlikely to recoup losses so far this year, there is still a bullish seasonal effect.

As Hirsch writes, “The fact that November 2022 has passed so far supports the continued upward trend.”

What to watch today

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