Tharp's Thoughts Weekly Newsletter
Thanksgiving Week — Another Strong Seasonal for Stocks
by D. R. Barton, Jr.
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As the U.S. markets prepare to close Thursday for the Thanksgiving holiday, this is a great time to stop and reflect on what you are grateful for in your life. If you need a little encouragement (or scientific support for why gratitude is useful in our lives), check out one of my favorite articles which was written for the Thanksgiving holiday a couple of years ago: http://www.vantharp.com/Tharps-Thoughts/656_nov_20_2013.html
Science has indeed shown us that expressing gratitude has positive benefits. During this week of Thanksgiving, turkey dinners, football games and shopping mania (Black Friday is a-comin’…) there’s a seasonal phenomenon where the equity markets here in the U.S. are supposed to get a boost this week. Is that really the case? Let’s look at the numbers.
An Upward Bias That Has Legs
Long-time readers know that I have spent extensive time over the years researching seasonal tendencies. Many of the ones that are touted in the media are just plain hokum (The First Five Days, The January Effect, etc.). But there are also some strong seasonal tendencies that really do work. I recently wrote about The Halloween Indicator which has been valid for centuries and has gotten stronger in recent decades. Today we will look at another one – The Thanksgiving Rally.
My friends over at Bespoke.com ran the numbers on the returns of every Thanksgiving week dating back to 1942. Why that year? 1942 was the first year that the Thanksgiving holiday had been officially set as the last Thursday in November.
Since 1942, the S&P 500 has been positive on the four trading days of Thanksgiving week 64% of the time with an average gain of 0.57% for the week. The calculations were made from the closing on the Friday before Thanksgiving week until the Friday close the day after Thanksgiving.
The folks at Bespoke put together this chart showing the cumulative returns for this data set:
Since 1995, the returns have been even stronger (0.81% per year), but are skewed by the very strong returns in 2008 (+12.03%). That is partially offset by 2011’s big down Thanksgiving week (-4.69%). But in short, the effect strength of Thanksgiving week has held up over the years.
Interestingly, the Friday 11/20/2015 closing price for the S&P 500 cash index was 2089.17 and as I write this right after the close on Tuesday, we finished at 2089.14 today. For those keeping score, that’s a 0.0014% change – let’s just call it unchanged… So it will be interesting to see if the market can mount a push higher on Wednesday and Friday to get the Thanksgiving Rally firmly into positive territory for 2015.
Regardless of whether your country officially celebrates reasons to be grateful in some way this week or on some other date, I’d like to wish all of you a very happy Thanksgiving!
I’m always grateful when you take time to share your thoughts and comments. Send them all to drbarton “@” vantharp.com.
About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured analyst on Fox Business’ Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch’s Money Life Show. He is also a frequent guest analyst on CNBC’s Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television — America and Canada’s Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".
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by Z. Premji
I keep track of many things that Dr Tharp says and I try to distill them down to something actionable. Over the course of several years of reading him and following him via the monthly report he creates, I was inspired to write a several haiku combining what I take away. I use Twitter to keep my haiku and the ones I created from those inspirations have been there for some time.
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November 25, 2015 #761
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