Thanksgiving Week is usually an exciting event for traders. Over the last 61 years, the S&P 500 has been up about 80% of the time from the close on Tuesday to the close on Friday. The Wednesday before Thanksgiving has been up about 77% of the time, and the Friday after Thanksgiving has been up about 70% of the time. However, the following Monday has been negative about 65% of the time.
It is important to remember that this sort of seasonality is an inclination, not a certainty. This year we are at the jaws of an ugly bear market that will influence these tendencies to some degree.
Seasonality is self-fulfilling to some extent. Traders expect it and help it to occur, but when we are in a tough market environment, strategic considerations can produce a trap for traders who are overconfident about seasonal tendencies.
There is a long history of strong speculative trading in secondary stocks around Thanksgiving. Back in 1999 and 2000, some of the junkiest internet-related stocks made huge moves as aggressive traders piled into names like K-Tel Records and Books-a-Million. It is very likely that there will be a few names this holiday trading that are embraced by speculative traders that are looking for action.
Holiday trading may be a nice distraction this week, but there is a bigger battle out there that is still raging. Traders are pushing the narrative of positive seasonality and poor positioning to support a rally into the end of the year, but they are facing a hawkish Fed and a dismal economic picture.
There are two market adages that are doing battle with each other. One is 'don't fight the trend,' and the other is 'don't fight the Fed.' The trend is more important in the short term, but the Fed is far more important in the long term. All year we have seen how the Fed can quickly kill a bounce. Just as market participants start to hope that the bear market is over, the Fed reminds them of all the economic problems that are still unresolved, and back down we go.
Goldman Sachs is out with new comments from its strategists, saying that the bear market will continue in 2023. They believe no sustained recovery can occur until interest rates have peaked and valuations reflect a recession. We are not close to this at this point, so they see a difficult market for most of next year.
It is interesting to consider Goldman's market view, but it really isn't necessary to make predictions of that sort. Stay focused on the price action and let it indicate the market's health. At some point, a significant change in character will occur, and we will know that the bear market is ending. I have no idea when that might be, so just keep plugging along and stay vigilant.
We have a negative open due to concerns about increased Covid cases in China. The dollar is jumping, and cryptocurrencies are weak again.