WHAT IS BLACK FRIDAY?
Black Friday was originally the term used to describe the stock market collapse of 1869, when American investors Jay Gould and James Fisk caused a financial meltdown after a failed attempt to corner the gold market.

The modern concept of Black Friday, however, came about in the 1940s to entice people to the stores the day after Thanksgiving. Named for its tendency to contribute to traffic accidents, Black Friday later took on a new meaning as companies expected to make enough sales to put them ‘in the black’, or profitable, for the year.

It was not until the 1980s, however, that retailers began to slowly use the day as a marketing tool, culminating in its widely-held status as the most popular shopping day of the year in the 2000s. Today, Black Friday is more than just a US-based tradition; it has spread to some 20 other countries, including Mexico, Russia and Pakistan.

In conjunction with Cyber Monday, the Monday after Thanksgiving that pushes online sales, the shopping period is seen by some analysts and market commentators as providing a measure of economic prosperity. That measure can then be used to predict the performance of other assets such as stocks.

THE INFLUENCE OF BLACK FRIDAY
Marketing gimmick or useful indicator; what’s the overall influence of Black Friday? To answer, it’s worth examining its effect on retail spending and consumers, the economy, and the resulting effect (if any) on traders and stocks.

1) Retail spending and consumers

There is no doubt that Black Friday influences consumers to spend. Across a range of countries, the event is promoted as a rare chance to save money across a gamut of products, from laptops to lawnmowers, and historical media coverage of the event has featured stampedes in retail outlets as bargain-hungry punters battle for deals. In 2018, Adobe Analytics data shows $6.22 bn was spent online in the US, representing a 23.6% increase on the previous year. Furthermore, every Black Friday bar one has seen higher retail sales volume than any other date.

2) Economy

Black Friday’s influence on the economy is more debatable. Some argue in favor of the Keynesian effect of spending driving economic activity, which puts more money into circulation and potentially buoys the economy. At a time when the US economy has shown signs of recession, consumer spending might be welcomed. But others say that the influence of the event is negligible, with only short-term effects observed. This is due in part to lessons from previous years, when many retailers have seen poor sales figures once the discounting has ended.

However, if stores decide to go another route and prolong discounts, profit margins can be eroded, potentially meaning staff cuts and increased unemployment. Knock-on economic effects of this could include decreased income tax receipts and a raised welfare burden, factors which raise an argument for Black Friday having a net negative economic effect.

3) Stocks/stock markets

The influence of Black Friday on stock markets and individual stocks is also less than straightforward. Perhaps predictably, a range of retail stocks can be expected to rise if sales expectations are met. Conversely, unexpectedly weak sales can suggest poor consumer confidence and a fragile underlying economy, giving traders reason to go short. But even if a given company has enjoyed strong sales, this performance has no bearing on its profitability or overall financial health, which are factors traders should consider when picking one stock over another.

Examining the impact of previous Black Fridays on financial markets gives an insight into the trends traders might expect to see following this key date in the future.

KEY CONSIDERATIONS WHEN TRADING STOCKS ON BLACK FRIDAY
Once traders have assessed the market and gained a feel for the retailers taking a lead in Black Friday sales, there are a variety of other considerations to make when trading stocks around this period.

Stock market liquidity: Trading around the holidays can seriously distort liquidity and Black Friday is no exception. With fewer traders on the desk, liquidity dries up and the potential for larger swings can increase – especially as stop losses are triggered automatically and positions are ditched.
Fundamental factors: These may give clues as to how consumer spending may go, allowing traders to consider certain retail stocks. For example, lower gasoline prices and strong employment figures could signal more spending power and company sales expectations being met. However, as mentioned above, it’s important to be aware of a whole range of other factors that can impact the market and overshadow any moves caused by consumer sentiment.
Online vs brick and mortar sales: Brick and mortar retailers have lost ground to their online competitors in recent years and Cyber Monday threatens to take the crown in terms of total sales. To capitalize on this, it may be worth keeping an eye on stocks like Amazon and Best Buy which offer attractive online shopping deals around the holidays.
Earnings usually aren’t released until January: Traders should also be mindful that company performance may not be entirely clear until earnings, which for many companies will be released in January.

Reference by: Ben Lobel, Markets Writer