Don’t Overrate Black Friday—Even This Year

Well, today is Black Friday—the day after America’s Thanksgiving holiday, when retailers traditionally offered big discounts as the official holiday shopping season kicked off. Many UK retailers have imported it in recent years, leading many financial commentators we follow to import the American tradition of attempting to read Black Friday tea leaves for insights into the economy’s health. In our view, that seems doubly true this year, as people search for clues on how global supply chain bottlenecks will affect the availability of Christmas presents—and holiday sales in general. But ports backlog or no, we recommend not getting hung up on Black Friday. Whether or not this weekend’s final tally is big, we doubt it will offer any insight worth basing portfolio decisions on.

We can understand the temptation to read into Black Friday results this year. Financial commentators we follow often see Black Friday as a signal of economic health. This year, many couch them as bellwethers of the US and UK’s ability to withstand the supply chain snarl. But in our view, there are likely too many moving parts to be able to isolate this or other headline concerns, including the expiration of COVID assistance and potential job losses as vaccine mandates take effect. Plus, these issues aren’t exactly a surprise at this point, as many commentators we follow have been warning of these potential headwinds for months. So even if you could glean something negative from the results, it likely wouldn’t be earthshattering for stocks—it would probably just confirm whatever markets have already priced, as our research shows they reflect all widely known information, including forecasts and repeat warnings in financial headlines.

Even in a normal year, to the extent any year is normal, we wouldn’t overrate Black Friday. Yes, holiday sales are nominally important to retailers’ full-year profitability, but they are just one variable affecting two sectors of the stock market (e.g., Consumer Discretionary and Consumer Staples). Even then, we don’t think Black Friday is the be-all, end-all for holiday sales. Over the years, the traditional Black Friday discounts have spread beyond the day. First it was Black Friday weekend, then Black Friday week, then Black Friday month. This year, we started receiving holiday discount codes for several retailers in October. So we doubt that when the weekend’s sales totals hit the wires that it will be hugely telling about the month—or December, when an awful lot of holiday spending also occurs, according to our research.

Nor do we think the results will likely reveal much about the supply chain backup’s impact, for good or ill. We saw headlines urging Americans to start their Christmas shopping as early as July, making it entirely possible that fears of empty shelves pulled holiday demand earlier in the year. That may even be why US retail sales haven’t yet pulled back materially from this year’s post-lockdown boom.^[i] Note, too, that Christmas-y categories, including general merchandise and several specialty stores, were quite hot in August and September.^[ii] Why something happens is always harder to discern than what happened, but we do think the pull-forward effect is a reasonable theory partly explaining the strong outturn. Similarly, when UK retail sales jumped 0.8% m/m in October, the Office for National Statistics cited “early Christmas trading” as a primary contributor.^[iii]

If results are good, well, it may not necessarily mean that goods magically appeared on shelves and the Supply Chain Grinch didn’t steal Christmas after all. We have found people to be very, very resourceful. If Tickle-Me-PlayStation Barbie (or whatever this year’s hot toy is) isn’t in shops this weekend, it doesn’t mean that little Jimmy and Jenny won’t get Christmas presents. Maybe they will get gift cards so they can go buy Super Mario Fortnite in March. Maybe Lego gift cards will be this year’s hottest ticket. Or perhaps the kiddos will receive vouchers for services like karate lessons. Necessity is the mother of reinvention. But if Black Friday sales figures include a bunch of gift cards and services, that won’t mean much for all those container ships idling off major ports globally.

More broadly, we think searching for real-time clues into current events’ economic impact largely misunderstands how markets work. Our research shows they don’t wait for confirmation that whatever thing everyone feared had a negative impact—they move ahead of widely expected events. For as long as we have all been hearing about supply chains and COVID benefits and vaccine-related job losses, the likelihood any actual negativity has any surprise power left seems very, very low. Maybe better-than-expected results prove an incrementally positive surprise, but we wouldn’t even dwell on that—retail is just one area of potential impact. Industrial production, services output and a host of other economic indicators would also need to fill out the puzzle. By the time those results come out, we think forward-looking markets will likely have moved on from whatever they show.