February 24, 2024

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Why Thanksgiving week is usually bullish for stocks

Why Thanksgiving week is usually bullish for stocks

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Thanksgiving week heralds the holiday season for Americans. It also triggers a seasonal bull run for investors who look to historical probabilities before padding their portfolios.

Looking through the history books, the Wednesdays immediately preceding T-day have had the best historical gains for the week. Until now.

Thanksgiving week is seasonal for stocks

According to Yahoo Finance data and calculations, the S&P 500 has finished the week in the green for three-quarters of the time starting in 1961 — with an average gain of 0.3%. For the entire week, the S&P 500 was positive two-thirds of the time, allowing investors to book an average gain of 0.75%.

In the midst of the global financial crisis, 2008 was the best year for Thanksgiving week — with the S&P 500 gaining 12.0%. The worst year was three years later in 2011, which suffered a loss of 4.7%.

Jeff Hirsch in Stock Traders Almanac I first noticed the seasonal turkey day trend in 1987. Since then, the pattern for the week has become a bit less bullish – especially on Wednesday and Friday. This is because, incredibly, both of these days of the week were green in 34 of the 35 years leading up to 1987.

However, if an investor bought the S&P 500 on the Friday before Thanksgiving and sold it on the Friday after the start of 1961, it would have risen 42% from last year — a compound annual growth rate of 6.2%, according to Yahoo Finance data.

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It may not be better than investing continuously, but it’s not bad for just a few days of exposure a year.

Day trading stocks in Türkiye;  Courtesy: mid-flight

Turkey is considering investing in Tesla shares. This image was created by Yahoo Finance using the Midjourney website and platform.

When it comes to sectors, energy has performed best – posting average gains of 1.5% with a win rate of 74% since 1999. Close behind, the materials, technology, consumer discretionary and telecommunications services sectors have allowed investors to gobble them up. Average gains are 1.0% or more.

The Financials sector performed the worst over time, rising just 0.2% with a win rate of 57%. Utilities, Healthcare, Real Estate and Industrials followed closely behind with only small gains. When it comes to the sector’s performance during the holiday week, it’s feast or famine.

But the bullish seasons don’t end this week Hirsch pointed to a number of patterns that continue into the new year.

“November [to] “January is the best 3-month streak of the year,” Hirsch wrote, adding, “And then there’s the January effect [of] Small companies outperform large companies in January, which begins in mid-December.”

Finally, the culmination of the holiday season and the start of the new year is the famous “Santa Claus Rally,” first defined and popularized by Yale Hirsch (Jeff’s father) in 1972.

Option Strategist founder Larry McMillan had the brilliant idea of ​​combining all of these seasons into a highly seasonal trade – when investors can buy on the Tuesday before Thanksgiving and hold through the second trading day of the new year.

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Since 1950, the S&P 500 has risen nearly 80% over this roughly six-week time frame — posting an average gain of 2.57%.

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