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Black Friday Could Crush Retail but It’s Unlikely to Derail the Dow Jones

Last Updated September 23, 2020 1:18 PM
Laura Hoy
Last Updated September 23, 2020 1:18 PM
  • The timing of Black Friday this year makes the holiday shopping season shorter by six days.
  • That could hurt retailers who do a large proportion of their business in the fourth quarter, but most aren’t likely to be hurt.
  • While poor Black Friday results could hurt the chances of a year-end rally, tension with China is a more likely culprit.

The all-important holiday shopping season kicks off in just three days with Black Friday on the day after Thanksgiving. But the infamous discount day could be the kiss of death for a slew of retailers. Not only that, but the event could pull the rug out from under a potential Santa Claus rally that many are hoping for to finish off a decade-long bull market. 

This year Black Friday comes much later than normal, on Nov. 29. That’s nearly a week later than last year’s kick off on Nov. 23. Fewer shopping days between Thanksgiving and Christmas means retailers are eliminating an entire week’s worth of sales during their most crucial period.

Source: Yahoo Finance The timing could be especially painful for those who generate a huge portion of their sales  during the holiday shopping season. Macy’s (NYSE:M) generates nearly 70.5% of its yearly EPS during the fourth quarter. Nordstrom (NYSE:JWN), Williams Sonoma (NYSE:WSM), and Kohl’s (NYSE:KSS) also generate more than 40% of their full-year EPS during the holiday shopping quarter. 

Black Friday’s late arrival will likely dent comparisons for that bunch, but realistically the missing week won’t make or break retail stocks’ performance. Department stores like Macy’s, Nordstrom, and Kohl’s are already hurting as foot traffic continues to decline in the U.S. That segment has much larger problems than the six-day difference between this year’s Black Friday and last year’s.

The shortened shopping season is unlikely to have much of an impact on retail’s heavy-hitters like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT). E-commerce has made holiday shopping easier, especially as one-day and same-day shipping options become more prevalent. Both firms see much more even spreads from quarter to quarter and likely won’t miss the six days. 

Beware of Black Friday Data

The timing of Black Friday will probably have minimal impact on retailers’ Q4 results. But retailers aren’t the only ones looking to Black Friday sales for a lift. Traders will also have a close eye on preliminary shopping data for insight into consumer behavior. This week consumer confidence data dealt another blow to market bulls when the figure fell for the fourth straight month in November. 

The Conference Board’s consumer confidence index fell  to 125.5 in November, down from 126.1 in October and well below forecasts of 127. The news raised questions about the underlying strength of the economy and reignited warnings about a possible recession. Still, traders remained optimistic as although the index has fallen over the past four months, the figures are still relatively high and point to moderate economic growth. 

Questions about whether the consumer confidence index’s decline is signaling trouble ahead will no doubt be answered in the days to come. Preliminary Black Friday shopping data could move the needle for the stock market as investors look for clarity. While the data does offer a window into retail’s most popular shopping period, it’s important to note that it’s not as accurate as it once was  because of extended shopping sales and the addition of e-commerce. 

What Does it Mean for the Santa Claus Rally?

Last year, worries about the Fed’s rate increases helped quash an end-of-the-year Santa Claus rally , but this year things could be different. The Fed has been accommodative heading into the end of the year with most expecting no rate change in December. Plus, last year when the market declined at the end of the year, global markets were in a much more precarious position. This year stock markets around the world are showing more strength.

Overall, market sentiment is in a good place to facilitate a Santa Claus Rally to finish off the decade— but all that could change at the drop of a hat.

Poor Black Friday results are just one catalyst that could send the stock market lower in December. There’s also the fact that the Dow Jones has been trading at record highs over the past few weeks. Perhaps Santa came early and the hype of a year-end rally could magnify minor headwinds.

The most pressing issue facing the markets right now is the ongoing tension between the U.S. and China. While trade talks appear to be moving in the right direction (albeit slowly), the situation in Hong Kong has become worrisome. If the protests continue to escalate, it could severely damage the already tenuous relationship between the U.S. and China. The controversy over the U.S.’ role in the ordeal has the potential to upend progress on trade talks, a scenario that would almost certainly send the Dow Jones into a nosedive.

As of this writing, Laura Hoy was long AMZN.

Disclaimer: The above should not be considered trading advice from CCN.com.