As the Thanksgiving Holiday is just around the corner, we took a look at the historical performance of Equities around holiday time periods. Using the S&P as a benchmark index, we found that equities tend to rally ahead of a Holiday Weekend, presumably as positive psychology translates to buying of equities. There are many factors potentially contributing to this phenomenon, not least being investors’ and traders’ seemingly buoyant and jubilant moods impacting their investment decisions. All data is compared to standard 1-day, 3-day and 5-day time periods to verify whether the Holiday Seasonal Effect is statistically significant when compared to any plain vanilla holding period.
In particular, the Fourth of July Holiday tends to display the most bullish seasonal patterns ahead of and after the Holiday, rising on average 0.70% and 0.45% 3 days and 1 day before the Fourth, respectively. Looking at 5 days, 3 days and 1 day before the holidays, the returns are 0.195%, 0.223% and 0.092% compared to an average return of all these intervals of 0.04%, 0.13% and 0.22%, a statistically significant result. The return 1 day ahead of the Fourth of July of 0.45% lays at the 66th percentile of the Normal Distribution, which is statistically significant, and represents a favorable opportunity to purchase equities heading into the Independence Day weekend. Also, looking at the 3 days before the Labor Day holiday, S&P tends to rally 0.76%, on average – the most positive performance before any holiday over a 3 Day stretch. Finally, over a 5-day holding horizon, the Christmas season represents the jolliest time of the year as investors’ and traders’ cheery moods are probably manifested in their investment decisions ahead of the joyous holiday. The upcoming Thanksgiving Holiday time period, however, does not present an abnormally positive return around the holiday season.
In summary, there are a handful of holidays that particularly stand out as being statistically significant in exhibiting a Holiday Seasonal Effect while others are less favorable, so digging into the data further and selecting the standout holidays is most judicious. In particular, the Fourth of July (Independence Day), Christmas and Labor Day Holidays represent time periods during which equities trend favorably higher and represent an opportunity to capture additional alpha.
Holiday Seasonal data since 2010
Compared to All Daily Data since 2010
Looking at last week’s CrowdThnk Top Forecasts, our high conviction trades correctly predicted 4 out of 6 total trades. Particularly noteworthy was Seagate Technologies (STX, CrowdThnk Positioning Score: 7.5) which was given a 61% probability of rallying higher. Last week saw a robust 4.4% rally in STX with the week finishing near the pivotal 200-dma level of $39.90. Seagate Technologies has returned an impressive 30% over the past 2 months and we continue to see market flows move aggressively into the stock, pushing positioning higher.