Doors Floors and More

Cited: Wall Street Journal

Black Friday has been considered an important indicator of retail sales during the holiday season for many years. However, this year the following Monday or cyber Monday may provide important information on how the stock market will perform the remainder of the year.

On Friday, November 27, stock market trading volume will be particularly weak and it will be difficult to get a clear reading on how much spending consumers are actually doing. But by Monday, preliminary reports of retailers’ sales on Black Friday and throughout the weekend will have been released, and they are likely to become a big driver of Monday’s stock-market action. Using history as a guide, Monday’s trading is likely to indicate what the stock market will do the rest of the year.

This year, holiday retail sales have become an even bigger focus for investors than in the past. With the consumer-discretionary sector of the S&P 500 having climbed 34% so far this year despite a 10.2% unemployment rate, investors are looking for the consumer’s behavior this holiday season to either justify the rally so far and indicate more gains may come, or show that it’s time to get out.

“Black Friday is critical,” said Michael Alpert, a portfolio manager with Seligman Investments. “Black Friday is really where we’ll get a sense of how strong the consumer feels and if the 90% of consumers still employed are still going to go out and spend.”

According to Schaeffer’s Investment Research, looking at the past 40 years, the Dow Jones Industrial Average has climbed from the close of the Monday after Thanksgiving through the end of the year 75% of the time that the Dow was positive on that Monday after Thanksgiving.

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The average return over that period was 2.5%. Whenever the Dow fell on that Monday, it still rose from then through the end of the year 61% of the time, but 61% isn’t nearly as strong as 75%, and the average returns during those periods were a weaker 1.78%.

The connection is even stronger in recent years, when more accurate data became available sooner after Thanksgiving. In the last 10 years, when the Monday after Thanksgiving was positive, stocks rose through the end of the year 100% of the time.

The National Retail Federation released survey results Wednesday that showed up to 134 million people are expected to shop this Friday, Saturday or Sunday, higher than the 128 million people who said they planned to last year. In addition, Andrew Beck, portfolio manager at Aston/River Road Asset Management, said he wouldn’t be surprised if the sales results from this weekend beat investors’ expectations, which would be good for stocks through the end of the year.

Still, Mr. Beck said, “that’s only because expectations are so low and comparisons to last year are easy.” He added that regardless of how the retailers do this holiday season, valuations are no longer that attractive, which prompted his firm to recently sell its holdings in Polo Ralph Lauren Corp. and Abercrombie Fitch Co.

Nevertheless, many participants are waiting for this weekend’s retail sales to decide how to position their portfolios for 2010.

“Given the appreciation that we’ve seen among a lot of these consumer-oriented stocks, investors are paying more attention,” Mr. Beck said. “You’re more sensitive to what’s going to happen in the holiday season to make a decision of ‘Do I want to hold this position into the new year, or not?’”

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My Take: Well, it seems logical that the following Monday would be a better indicator of not only stock prices but retail sales. Many people do not want to fight the crowds on Black Friday. There are a lot of people who will stand in line for hours just to get a good price on a pair of low rise jeans for Christmas present. I, myself, would rather we go online and get a better pair of skinny jeans and take advantage of the convenience of doing it for my own home.

However, many people feel that Black Friday is the best day offer sales and lower prices. They can find the makeup and natural skincare products if they want at lower prices. Or maybe they’re looking for sales on Hugo Naturals shampoo. If they would only realize that they could probably get the same items online at a sale price, they would not have to wait in line for so many hours.

Some online retailers can provide some beautiful custom gifts at sale prices. In fact, I know one online retailer that sells personalized custom gifts at good prices. I believe that online retailers are going to take advantage of Black Friday just as well as in-store merchandisers. So I do think that Monday will reveal a lot after the weekend.

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