Don’t Overrate Black Friday—Even This Year

Well, today is Black Friday, and according to one of our favorite recent Internet memes, most of the country probably wasn’t in great shape for lining up for the annual retail frenzy before dawn. You see, everyone’s Christmas presents are supposedly stuck on container ships, leading Internet jokesters to claim lining up meant treading water or swimming for hours.^[i] That may seem problematic given some retailers’ reputed reliance on holiday sales to turn a profit. But ports backlog or no, we recommend not getting hung up on Black Friday. Whether or not this weekend’s final tally is big, it won’t give you any insight worth basing portfolio decisions on.

We can understand the temptation to read the Black Friday tea leaves this year. Pundits often see it as a signal of economic health—perhaps doubly so this year, as many couch them as bellwethers of the country’s ability to withstand the supply chain snarl. They are also supposedly an early glimpse at whether expiring COVID relief and vaccine mandate-driven layoffs will weigh on consumption. But in our view, there are just too many moving parts to be able to isolate either issue. Plus, neither is exactly a surprise at this point, as pundits have been warning of these potential headwinds for months. So even if you could glean something negative from the results, it wouldn’t be earthshattering for stocks—it would probably just confirm whatever markets have already priced.

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, Black Friday isn’t 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 on Monday that it will be hugely telling about the month—or December, when an awful lot of holiday spending also occurs.

Nor will the results be telling 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 retail sales haven’t yet pulled back materially from this year’s post-lockdown boom. Note, too, that Christmas-y categories, including general merchandise and several specialty stores, were quite hot in August and September. Why is always harder than what, but we do think the pull-forward effect is a reasonable theory partly explaining the strong outturn.

And 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. People are very, very resourceful. If Tickle-Me-GI Joe 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 idling container ships.

More broadly, searching for real-time clues into current events’ economic impact largely misunderstands how markets work. 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 metrics would also need to fill out the puzzle. And by the time those results come out, forward-looking markets will likely have moved on from whatever they show.