To Stocks, Black Friday Is Just Another Day

At last, the day is upon us! The day when turkey-filled Americans awake at 3 AM and bust down doors to secure allegedly huuuuuuge deals on their holiday shopping and burn off the prior day’s pie. Yes, it is nearly Black Friday, that supposedly make-or-break day not just for retailers’ bottom lines, but for total consumer spending. Forecasts are giddy that this year’s haul could top $75 billion.^[i] As always, we suggest not getting hung up on this, for good or ill. Whether the final tally misses or beats forecasts, it really doesn’t say anything about stocks’ economic drivers.

For one, while that $75 billion is an eye-catching number, it encompasses the entire weekend—Black Friday, Small Business Saturday, Whatever the Heck They Call That Sunday and Cyber Monday. It is also a product of recent years’ inflation, baking in the accumulated price increases on Malibu Furby or whatever the hot toy is. Nominal totals are always pretty meaningless, especially just after a period of wild inflation.

Then, too, the discounting landscape has changed a lot in recent years. Promotions are no longer limited to the Thanksgiving weekend. Based on the anecdotal evidence from our in-boxes, many retailers offered Black Friday-like “friends and family” discounts from late October. Echoing the UK’s importation of Black Friday, the US seems to have imported Singles’ Day from China, blessing shoppers with a boatload of promotional deals on November 11. (We guess you could also argue Amazon’s October Prime Day event is cut from this cloth.) Then came the “Early Black Friday” deals, which are now in full swing. The madness, fun, whatever you want to call it, will probably run through next week … and all the way through New Year’s.

For shoppers, it can all get a bit mind-boggling. Do you go for those friends-and-family deals in October? Hold out in hopes the discount is a bit bigger around Thanksgiving? Should one spring for that 25% off on Singles Day or hold out for 30% on Cyber Monday? And what if discounts get even bigger as Santa’s Sleigh gets ready to fly? Do you wait for the best deal possible or strike early, when inventory is at its peak? These calculations might sound trivial, but in our experience, they lead to holiday shopping getting scattered throughout the autumn and early winter. The entirety of Q4 retail sales is a better reflection of holiday demand than November alone.

Even then, the results aren’t terribly meaningful. Legend has it Black Friday is so-called because it is the day on which retailers’ bottom line turns from red ink to profitable black. Perhaps that is so, if we are talking about a small boutique keeping its books and managing its inventory in a very particular way. But that isn’t really how it works in this modern corporate world, where metrics like year-over-year same-store sales growth get most attention. And year-over-year earnings growth, which is the measure investors tend to look at most. Consumer Discretionary stocks haven’t been reporting negative earnings per share all year. Profits have grown at a jaunty clip.

Holiday spending isn’t make-or-break for the US economy, either. Rather, it is the sort of spike that gets scrubbed via seasonal adjustments so that data watchers can get a cleaner look at the trend. For us, this raises some academic curiosities, like, how will seasonal adjustment factors deal with the increasing rise of Black Friday Season? Will that cause some skew that statisticians will have to discern how to scrub? And what of our friends across the pond, how are their national statistics agencies adapting to Black Friday’s increasing popularity in Britain?

But our fun is markets’ meh, whatever, we are too busy looking at the totality of the next 3 – 30 months and all relevant drivers. Stocks deal efficiently with the entire economic landscape as they weigh how reality is likely to shape up relative to expectations over the next year or two. They look not to one season, but to the whole range and the whole spectrum of things affecting activity within that range. Holiday demand is just one datapoint of many.

So enjoy your discounts and your shopping, if you choose to participate. Deals are fun, even if the Black Friday variety tends to be a little … made-up. For every flat 30% off offer, there is a “doorbuster” with an artificially inflated “original price.” Retailers know how the human brain works and are good at capitalizing. But that is part of the game. So, do your homework, enjoy, and watch out for online scams! But don’t presume any of it is hugely important for the economy or stocks.