Black Friday and How it Affects Markets

Black Friday can be best captured by images of customers sleeping in tents outside stores or running in hordes to enter their closest shopping mall, while they fight their way through shelves to get to the desired items on sale. Indeed, Black Friday is the biggest shopping day in America since 2005 and takes place the first day after Thanksgiving. Originally, however, the term Black Friday was used to describe the stock market collapse of 1869. The Black Friday gold panic was a big scandal where American investors Jay Gould, James Fisk and Abel Corbin who was married to the President’s sister, tried to corner the gold market and push the price of the metal higher.

The earliest known use of “Black Friday” as it is commonly understood today came about in the 1940s. The use of the word black was linked to the fact that a busy shopping day contributed to traffic accidents. The meaning soon changed and was later associated with companies making enough sales to put them “in the black,” or to be lucrative for the year.

The modern use of the term becomes more widespread in the 1980s when retailers started to use it as a marketing tool. Today, the American tradition has become a global phenomenon as customers from around the world flock to shops to get the latest and best deals.

Black Friday: More Bang for your Buck?

Who doesn’t like a sale? The promise of cheaper goods is enough reason to motivate even the least interested consumer to spend a few bucks. So, traditionally, high volumes of sales have been documented. Fact. However, how does this affect the economy? Analysts argue that more spending equals economic activity and results in a healthier economy. Others, on the other hand, say that Black Friday’s effect is minimal with only short-term effects.

Stock Markets

While retail stocks may benefit from higher sales, the overall stock market and investor sentiment is not always impacted by the results of Black Friday. In fact, for many analysts Black Friday has no significance on the market and causes only short-term gains or losses.

Obviously, it is natural, as retail sales are higher, for retail stocks to also rise this period.  Traders can also get disappointed if market sales are poor and economic activity weakens.  The high sales of a company during this period should not cloud other facts when deciding to invest, such as whether the company is profitable or in good standing in general.

It has been noted that retail stocks usually make strong returns during this period, but this should also not be indicative of all stocks as there are differences among various retail stocks, fundamental reasons that can move the market and obviously differences between online and brick and mortar retail stocks. For example, stocks of online retailers such as Amazon are now more attractive than traditional retail stocks. Such reasons should be taken into consideration by any trader before making a decision.

Another important factor that will distort the market, is the liquidity, as trading around the holidays can be different, with less liquidity and more volatility. The market is closed on Thanksgiving and opens on Black Friday at 9:30 ET and closes at 1pm.