Another Black Friday is quickly approaching. While some are hoping for big savings on major purchases, isn’t it time to investigate the best stocks to buy for Black Friday? After all, Black Friday is more than just a day anymore. Many retailers get a jump on the event, offering early access to steep discounts, and many online vendors extend it through the full weekend into Cyber Monday.
It is a mini-season all its own, which is why it has such a big impact on retail sales.
Black Friday 2021
While Black Friday 2021 may see a surge in early shopping, it may not rise to the level it has reached in previous years.
The world’s experience with coronavirus has led to rethinking the consumer experience and given a boost to online shopping. But as life begins to return to normal, will consumers continue to avoid malls and in-store shopping?
The new normal combined with rising inflation makes this year’s Black Friday sale something of a question mark. Unemployment has dropped significantly since last year, but no one can predict how that will translate into business sales.
But does Black Friday holiday sales have any real effect on stocks?
There’s a lot of hype and speculation, and for the long-term investor, its really a lot of fuss over nothing. In the end, Black Friday is a single event, and few companies’ year-long fortunes turn on an event, especially a sales event that lasts only a few short days.
Still, stocks and Black Friday warrants a discussion.
The Retail Stocks That MAY Benefit from Black Friday
Even though Black Friday is hardly a game-changer for the stock market, certain stocks may warrant closer attention. Obviously, retail chains are at center stage.
But you have to be very selective even if you go that route. You probably already know if a given retailer will do well during Black Friday weekend. If they have a strong product line going into the holiday season, one that’s generating a lot of buzz and rising sales, Black Friday may only strengthen their case.
When investing in a major retailer, consider the ones that typically do well during the holiday season. This can include major retailers like toy stores and department stores offering a wide selection of gifts.
Given the economic uncertainty of 2021, it may also be worth thinking about discount businesses that focus on keeping prices low. Families on a budget may try to stretch their dollars when buying gifts.
Due to their usual high cost, electronics, including entertainment equipment and computers, do very well with Black Friday shoppers.
Supply chain issues remain a problem this year, which puts a damper on these stores’ ability to maintain retail stock and have enough product on hand to warrant huge sales. However, low supply stock may let these companies increase prices, eking more profit during the holiday season than normal.
Beauty and Jewelry Retailers
In general, specialized retailers, such as beauty or jewelry retailers, are popular during the holiday season. It’s a time that many people choose to splurge on luxury purchases they might not otherwise make.
One sector you may not have given much thought to is restaurants. With holiday shoppers out all day on Black Friday and into the weekend, people need a place to eat or to take a break from shopping.
The return of in-person dining makes restaurants an obvious choice. Many people will eat at fast-food restaurants or mall food courts while shopping, but some will look for a more relaxed meal once they’ve finished shopping for the day.
And of course, with so many people shopping online sales these days, online retailers seem like a sure bet no matter what’s happening with the big retail chains. Many companies have increased their online presence during the pandemic in response to changing consumer shopping habits.
How is the Stock Market Affected By Thanksgiving and Black Friday?
The stock market is not heavily affected by holiday shopping on Thanksgiving weekend in the grand scheme of things.
Perhaps the biggest effect of Black Friday on the stock market is in its predictive value. A strong Black Friday can be an indication of a strong holiday season. In the retail sector, the holiday season can make or break the entire year. If Black Friday is strong, sales will likely be strong for the season, leading to increased revenues and earnings.
But there's more than a bit of speculation in that assumption. That's the way it will work if Black Friday indicates a rising sales trend. If it goes in the other direction and sales come in below expectations, it could indicate a weaker-than-expected holiday season. If that's the case, the retail sector may experience a bad quarter and a bad year overall.
Compounding the problem is that such sentiment can carry into the new year. After all, fourth-quarter performance is a strong indicator of what will play out in the coming year, and that may be more significant in the retail sector than any other.
What Investors Should Do When Black Friday Comes
For the most part, if you're a long-term investor, the only thing you should do on Black Friday is shop around for the best Black Friday deals on the priciest gifts on your list, just like everyone else.
If you’ve already set your investment allocation, you’ll want to stick with it through relatively minor events, like Black Friday.
There's nothing about this shopping event that should motivate you to change your portfolio. Whatever allocation you deemed appropriate throughout the year should be exactly where you stay.
If the stocks you’re currently holding in your portfolio are fundamentally sound, there’s no need to make a change based on the upcoming holiday season.
If there is any insight to be gained, it might be that the stock of a retailer that has been struggling all year might be worth selling if it experiences lackluster sales during Black Friday. That could be an indication the company will continue to struggle into the new year. Of course, every other investor will be aware of the same situation, so it's unlikely you'll get the jump on selling.
Playing the Historical Bounce December and January
Apart from any potential retail plays over the Black Friday week, there may be something of a short-term strategy at this time of the year. Historically, stocks stage a year-end rally that carries into the new year. Adding money to your portfolio in November and early December might let you capture some gains in the news few months.
Based on the graph below, which includes data from 1928 through 2018, it turns out September is historically the worst month in the stock market, losing an average of 1%. But the market then turns modestly higher in October and November before staging a two-month rally in December and January, representing the strongest two-month stand of the year.
Combined, December and January have provided an average market lift of 2.5% (1.2% in January, plus 1.3% in December) according to the findings from Yardeni Research Inc.:
Rather than focusing on any bounce from certain retail stocks that might benefit from Black Friday, it may be more a matter of positioning for a general market upturn. If there is a play during this holiday week, that one might be the most predictable.
But once again, the combination of coronavirus and worries over the economy and job market could throw previous investment experience into serious doubt.
How Much of Your Portfolio Should You Commit to Black Friday Stocks?
Realistically, if you’re generally satisfied with your investment portfolio, the only strategy--and it’s a minor one at best--may be to put a minimal amount of your portfolio into the stocks of companies you think will do extraordinarily well through the holiday season. But even that is probably a decision you’ve already made. Otherwise, you can feel free to ignore your portfolio and jump into the Black Friday fray with the crowd.
When all is said and done, Black Friday is more of a shopping event for consumers than an investment indicator for investors. At least in the immediate term.
But if you do decide to adjust your investments, or if you don’t already have a portfolio and you’re ready to begin investing, check out our list of best online discount brokers to get started.