CHAPEL HILL, N.C. This weeks best investment advice: Ignore the initial reports on how well or poorly retailers are faring.
Thats because those initial reports at best are worthless as a guide to how retailers, and the stock market as a whole, will do from now until the end of the year. And they may even be worse than worthless, as the stock market in December often moves in the opposite direction to how it does right after Thanksgiving.
Consider what I found when comparing the Dow Jones Industrial Averages
DJIA, +0.14%
performance on the Friday after Thanksgivingaka Black Fridaywith its return from then until the end of the year. This chart shows what my PCs statistical program spit out; it reflects data back to the mid-1970s, which (as far as I have been able to discover) is when the phrase Black Friday began to be used to refer to the big shopping day on the Friday after Thanksgiving. (The data for years before 1975 tell the same story, by the way.)
Notice the inverse correlation in the chart: The Dow gains more after declining on Black Friday than it does after rising.
Read: Heres how tied retail stocks are to Black Friday and holiday shopping
To be sure, you shouldnt use this inverse correlation as a trading tool. Thats because it is not significant at the 95% confidence level that statisticians typically use to determine if a pattern is genuine. The correct investment conclusion to draw is that you learn nothing about the stock markets performance in December by focusing on its immediate reaction to Black Friday.
Might the insignificance of the Black Friday sales be a function of the growing importance of sales on the Saturday and Monday following Thanksgivingso-called Small Business Saturday and Cyber Monday? I dont think so. The inverse correlation I found when focusing just on Black Friday also emerged when I related the stock markets performance on both that day and the following Monday with how it did thereafter until the end of the year.
This is all good news: It means that you can savor your Thanksgiving dinner, watch football games to your hearts content and enjoy hanging out with friends and family, all without needing to pay any attention to the initial sales numbers and how the stock market is reacting.
For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email mark@hulbertratings.com.
