Broker Check

'Tis the season for the markets

| November 09, 2022

       The Holiday season quickly approaches and with it comes a lot of typical seasonality elements. The stock market is not oblivious to that. In finance, seasonality of the markets is a technical analysis approach that studies the stock market over a calendar year with the intent to establish predictable patterns. "Tis the season to be jolly"? Maybe.


       Retail stores typically show strong numbers following the Thanksgiving holiday and especially after Black Friday in the U.S. But when concerns over the economy accelerates, consumer spending tends to contract. Nevertheless, shoppers are expected to spend nearly $1trillion on gifts and holiday items this year.


       Americans continue to spend amid inflation being at 8.2%. Enthusiasm over the upcoming holiday season is on the rise. A NASDAQ article from last month suggested that retailers expect consumers to spend the same amount of money this holiday season, but for a lesser number of goods. Yes, that means expect fewer presents, because the items you bought last year, for example, will now cost you at least 8.2% more when adjusted for inflation.


       According to Salesforce, 37% of U.S. consumers will begin their shopping early to take advantage of deals prior to prices rising. The Dublin based company Accenture estimated that one-third (35%) of shoppers would stick to a “holiday budget”.


       While all these factors may indeed affect company revenues (therefore creating a stock price rise or decline), the reality of the holiday seasonal trends in the markets may be more associated to factors such as trading volume than anything else.


       All things normal, you may see increased volatility in the stock market as we approach Thanksgiving, Christmas and New Year’s Eve, as in years prior. These fluctuations can be largely attributed to the fact that the markets are closed on these days, and for half of Black Friday. Investors will try to get their trades in prior to the market close before the holiday and realize their gains and/or losses as they approach the end of the tax year. With the festivities going on, traders also spend less time trading, and more time enjoying other things such as quality time with loved ones, and less time trading. Yes, traders and investors are people too. Overall, the volume of trades is lower than normal during the holiday season.


       Trends are not set in stone. 2022 has been year full of unprecedented shifts in the economy and increased uncertainty in the markets. While analysts are expecting volatility to settle down throughout the end of the year, other economic factors, social conflict, and political pressures will play a significant role in consumer sentiment.