Key takeaways:

• The Thanksgiving week has historically been good for investors

• Sectors with the highest returns in the Thanksgiving week include consumer-oriented stocks 

Other than the Christmas period, Thanksgiving is the last occasion during the year where US investors contend with a shortened trading week. The New York Stock Exchange will be closed on Thursday for Thanksgiving, while Friday is a shortened trading session. 

Amid reduced trading hours, the US stock market tends to exhibit certain trends over Thanksgiving that, more often than not, suggest a good outcome for investors. Here is what you should know.

Thanksgiving Week Performance

Historically, Thanksgiving week tends to outperform the average weekly result for the stock market, albeit the week starts relatively slowly. 

The Monday of Thanksgiving week typically returns a small gain on average, but there have been more negative results than positive results. On the other hand, Tuesday averages a modest loss, but that is based on a positive session in more than 60% of instances.

Nonetheless, over the last six decades, the S&P 500 has returned a positive result approximately 80% of the time between the close of trade on Tuesday and the close of trade on Friday.

The Wednesday before Thanksgiving has finished in green territory roughly 77% of the time.

The Friday after Thanksgiving has delivered an increase around 70% of the time.

However, the following Monday has finished in the red about two-thirds of the time.

The Start of an End of Year Bull Run

In keeping with seasonal trends, the US stock market often gains momentum from the Thanksgiving period. 

Looking at data going back to 1936, the S&P 500 has delivered an average return of 4.5% between November and January. In comparison, the average three-month gain for the benchmark index is just 2.9%.

Additionally, between the Wednesday before Thanksgiving and the second trading day of the new year, small-cap shares tend to outperform large-cap shares on the US stock market.

Sectors of Interest

Over the last 10 years, a clear trend has emerged in the Thanksgiving week that favours consumer-oriented stocks from the S&P 500.

Sectors with the highest average returns during the Thanksgiving week include household goods and construction (ranked #1), travel and leisure (#3), personal goods (#6), and retailers (#9).

Given the amount of spending due to Black Friday and Cyber Monday, and an increase in travel for the Thanksgiving holiday, it no surprise that each of the above sectors have delivered a positive weekly return over this period no less than two-thirds of the time.

On the other hand, the sectors that tend to struggle during this week include utilities and energy. Electricity, as well as gas and water are the only two sectors to average a negative return in the Thanksgiving week. Both sectors are also the only ones to average a positive return less than 50% of the time.

Final Thoughts

Seasonal trends often tend to be somewhat self-fulfilling, with traders positioning themselves for an outcome to occur. In the case of Thanksgiving, that outcome has largely been a positive affair.

However, it is important to remember that past performance is no indicator of future performance. It pays to be aware of, and to respect historical trends, but the current market environment should always take precedence.