• Equities and volatility tend to increase after the Thanksgiving holiday
• FX and commodities do not follow a specific pattern in the examined period
• Post-Thanksgiving performance of equities in election years is very positive
• Euro/dollar and WTI oil rally when Thanksgiving falls on November 28

Thanksgiving holiday approaches

The month of November has been quite eventful, with the US presidential election monopolizing the market’s interest and causing significant asset movements. Most investors have now shifted their focus to incoming economic data releases and the remaining central banks’ meetings ahead of the festive period.

This time of the year gives rise to seasonal market phenomena, such as the Santa Claus rally. There is a belief that risky assets tend to rally towards the end of the year. Some analysts focus on the assets’ performance during the last five trading days of the year and the first two of the new year, while others are confident that the rally starts after the Thanksgiving holiday.

Consequently, the performance of the key tradable assets for the period between the Thanksgiving holiday and the last trading day of the year has been analysed. Data since 1991 has been used to ensure a large enough sample to reach reliable conclusions.

Equity indices send the strongest message

As seen in Table 1 below, there is no common emergent pattern in the instruments in question. For example, in the FX and commodities space, only euro/dollar has shown a tendency to increase in 67% of the years examined, recording a decent average return of 1.2%.

However, there are some noteworthy results. The S&P 500 index is sending the strongest message, as it has managed to finish in the green in 76% of the periods examined, i.e. in 25 out of the 33 years, with a respectable average gain of 1.6% achieved.

Similarly, the currently popular Russell 2000 index tends to rally by 3% into year-end. Interestingly, stock market volatility, as measured by the VIX index, tends to increase in the post-Thanksgiving period, partly due to the crucial central banks’ meetings and year-end portfolio reallocations taking place ahead of the festive break.

Focusing on specific S&P 500 sectors

The performance of stock indices is worth examining further. Based on the 11 sectors of the S&P 500 index, the Health, Financials, Consumer Discretionary and Utilities sectors tend to perform relatively well into year-end, outperforming the remaining seven sectors. The average performance of the four aforementioned sectors varies between 1.6% and 2.4%, which is a sold return over fewer than 25 trading sessions, thus outperforming the overall S&P 500 index.

What happens in election years?

Trump’s win drove equities higher, pushed gold lower and considerably boosted the dollar. Singling out the post-Thanksgiving performance of key assets during election years since 1991, this analysis confirms the tendency of stocks to rally into year-end. The S&P 500 index finished the year in positive territory in six out of eight periods examined, with an average gain of 1.4% recorded, dragging the VIX index higher in 75% of these years. Remarkably, the Russell 2000 index rallied in each of the eight periods examined, with an averaging return of 4.7%.

What happens when the Thanksgiving holiday falls on November 28?

Since 1991, there have been five instances of the Thanksgiving holiday falling on November 28: in 1991, 1996, 2002, 2013 and 2019. According to table 3 below, four assets, euro/dollar, Russell 2000, WTI oil and the VIX index show a tendency to rally in these five periods, with euro/dollar experiencing a sizeable average rally of 2.9%.

To sum up, markets are now in the home stretch for final part of the year, with Trump’s imminent presidency, geopolitics and the Fed’s rate outlook dominating market participants’ minds. Historical analysis shows that the post-Thanksgiving period tends to significantly boost equities and stock indices’ volatility. This Santa Claus rally is also observed in election years, and even when the Thanksgiving holiday falls on November 28. Intriguingly, certain S&P 500 sectors, such as Utilities and Financials, show a strong tendency to strongly rally into year-end.