This week’s trading in the US has been shortened due to Thanksgiving and Black Friday. During long holidays, the market tends to behave differently. A larger effect is generally observed in the stock market, but it can also have an impact on currencies. From historical trends and a review of major market concerns, we can get a better idea of what might happen over the next couple of days.
Usually, extended holiday periods like Thanksgiving are an opportunity for big institutional traders to take a break. This leads to a period of reduced liquidity, which exacerbates price moves. It also means retail traders have greater influence on the market. Small traders are often more optimistic, which is one of the reasons stock markets tend to trend higher during holiday periods. This translates into a risk-on environment in forex, with commodity currencies and emerging markets often outperforming safe-haven assets such as the dollar, yen, and gold.
How Much Does Thanksgiving Affect the Markets?
Over the last ten years, stock markets have increased by more than the average during seven of the Thanksgiving weeks. That means that the stock market not only went up, but it rose faster than its prior average. However, it should be noted that the market typically continued its prior trend during the week, with a wider swing. So, in years when the stock market was in the green through Thanksgiving, it continued higher through the week. But in years when the market was down, it usually continued to decline.
So far this year, stocks have provided solid performance, largely thanks to AI-backed tech firms. The benchmark S&P 500 is up 12%, while the tech-heavy Nasdaq is up 15%, both above the historic average for this point in the year. Typically, stock markets have gained around 10% by the end of November. Amid these gains, the currency has reversed, with the USD losing around 10% of its value since the start of the year.
A Sign of Things to Come?
A long weekend where markets are mostly closed poses an increased risk for the markets. Larger traders typically want to pre-position more conservatively ahead of a more extended period when they will be away from their desks. This could explain part of the risk aversion seen last week, which has since reversed.
Often, the week before Thanksgiving marks a bottom for the markets, as stocks usually outperform from then on to the end of the year. December is the best-performing month for stocks, as part of the “Santa Rally”. This could mean that if there are good economic indicators this week, markets could be poised for several weeks of risk-on performance.
What to Look Out for in Black Friday Trading
Black Friday and Cyber Monday can be make-or-break days for retail, as they are intense buying periods. Investors might look at it as a barometer of US economic health and consumer resilience. If retail sales outperform expectations, traders could regain confidence in the US economy and support the dollar. On the other hand, if sales disappoint, then the dollar could underperform.
Going into this holiday season, the markets have a lot to digest, which could make an upward trajectory a little bumpy. Over the last few days, hopes have returned that the Fed will go through with its December rate cut, boosting risk appetite. However, the continued strong performance of gold at the same time suggests that traders are looking forward with cautious optimism.
![Credit Card 160×600 [EN]](https://assets.iorbex.com/blog/wp-content/uploads/2023/06/13144507/Blog-Banner_EN-Banner_160X600X2.webp)
