How Black Friday is expected to affect investment portfolios

How Black Friday is expected to affect investment portfolios

Every year, consumers flock to retailers across the globe during the holiday season looking to buy gifts and take advantage of deeply discounted pricing. One of the biggest shopping days of the year is Black Friday, the day following Thanksgiving (celebrated on the fourth Thursday in November in the United States). According to the National Retail Federation, sales on Black Friday alone can reach approximately $9 billion.

For retail brands, the stakes are high since 13% of annual retail sales occur around Black Friday. Retailers who perform exceptionally well can see an increase in their stock prices ultimately attracting more investors. Savvy investment advisors and portfolio managers can leverage historical data and AI-powered analytics to improve the quality of recommendations to their clients during the holiday shopping season.

How Black Friday Became the Shopping Holiday of the Year

While today’s version of Black Friday is known for shopping, discounts, and holiday festivities, the day has a slightly darker origin. The first use of the term “Black Friday” was in 1869 when two Wall Street financiers caused the US gold market to crash forcing thousands of people into bankruptcy.

However, by the 1950s, retailers started using the term to advertise major post-Thanksgiving sales. Since so much money is spent around the holidays, it’s believed that many retailers operated at a loss (“in the red”) for much of the year until holiday shopping sales pushed them “into the black”.

 While this was traditionally an American shopping holiday, Black Friday has expanded internationally. Currently, retailers in about half of the world's economies participate in Black Friday events.

How Black Friday Affects Retail Stock Prices

For investors, financial advisors, and portfolio managers it’s important to understand how Black Friday can affect the movement of retail stock prices. Historically, retail stock prices have risen or fallen in correlation with the success of Black Friday. If sales are higher than expected, retail stocks tend to rise more compared to the average S&P 500. The opposite is true if sales are weaker than expected.

For example, between 2007 and 2017, retail stocks produced a 5% return compared to an average return of 3% for the S&P 500 during the two-week period surrounding Black Friday. The good news for investors is the strong year-over-year retail sales growth during Black Friday. The NRF found that Black Friday spending has increased by an average of 3.5% annually for the last 20 years. During this time, sales have only fallen for one year (in 2008 during the Global Financial Crisis).

There are numerous publicly traded retail brands so it may be difficult to anticipate which will perform well during Black Friday. Retailers have risen and fallen over the years as consumers’ buying habits change and more attractive retailers emerge. For example, JC Penny Company was once valued at over $8 billion (in 2011) and has fallen to a value of only $75 million. For this reason, it’s critical for investors to confidently be able to analyze brands for their potential through fundamental analysis.

fundamental analysis

Finding the Best Retail Stocks this Holiday Season

Black Friday stock trends may only be one piece of the puzzle. Amazon is currently the most popular shopping website in the world. However, its stock price doesn’t typically move much over the holiday season. That doesn’t mean that Amazon is a bad buy (Check out Amazon’s full report analysis here).

Leveraging AI-based analytics can help investors better understand which brands have the best long-term potential and if there are better alternatives in the market today. Investment advisors and portfolio managers that want to quickly and effectively maximize returns for their clients should look to these types of AI-based analytic tools to help them make smart investment decisions.

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