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With Black Friday 2020 just around the corner, you may be looking for the best savings of the season on electronics and other holiday gifts. But forget about that amazingly priced TV for a second, as you just might be able to find the best Black Friday deals on the stock market this year.
The best Black Friday actions for 2020
If you are looking for investments positioned to recover regardless of coronavirus conditions, market experts agree that e-commerce should play a key role.
“We currently favor Consumer Discretionary, which includes the major e-commerce players that were already gaining market share, but have really been the big beneficiaries of social distancing,” says Wells Fargo’s Samana, although she notes that holdings in that sector should not occupy more than 15% of the portfolio of an individual investor. “Our other highly rated sectors, such as technology and communication services, will also benefit as electronics and streaming services have been popular giveaways in these COVID-19 affected times.”
Spending patterns will be different this year, which should affect the performance of the markets.
“Most retailers are distributing their Black Friday deals throughout the month of November,” says Josh Simpson, financial advisor for Lake Advisory Group in Lady Lake, Florida. “This means that we can see a more even distribution of the sales figures during the month and it is not your typical sales boom during a weekend in November after Thanksgiving.”
Consider any of the following companies or their counterparts and competitors for your Black Friday spending spree. It is important to note that these are not recommendations for buying particular stocks, and you should be sure to do your own research before purchasing any type of security.
- Amazon (AMZN)
- Dick Sporting Goods (DKS)
- Etsy (ETSY)
- Macy’s (M)
- Nordstrom (JWN)
- Target (TGT)
- Walmart (WMT)
Companies adjacent to electronic commerce
Beauty and personal care
One area where experts advise investors to exercise caution is credit providers.
“Increased consumer credit utilization stemming from Black Friday would put credit providers at greater risk of those consumers defaulting later,” says Pierce Crosby, general manager of TradingView, a business research platform. “This could have an adverse effect on its share price, considering the already fragile nature of the economy and credit markets.”
How to invest for Black Friday
Many investors will already have a full portfolio before Black Friday. Any investment game can serve as a trade-in for current holdings in a particular sector, such as exchanging one stock in a major retailer for another or a combination of stocks in a particular sector could replace one of your holdings in a single index fund. .
However, long-term investors in index funds and exchange-traded funds (ETFs) are already positioned to benefit from any increase in share prices due to their diversified holdings.
The important thing to remember is to avoid timing the market, particularly this year when spending patterns can alter the performance of stocks in the days leading up to the end of the year. That is, if you are going to make an investment decision before Black Friday, it should be one that serves your overall financial goals, not one that is trying to make a quick buck.
“Everyone remembers the great home run hitters, knockout specialists, and sports athletes who always seem to make the big play,” Simpson says. “Many people take the same approach with their investment portfolio, constantly looking for that big winner.”
If that sounds like you, Simpson advises you to step back and breathe before investing your portfolio in anticipation of Black Friday sales trends.
“The most successful investors know that it is not a stock that makes a portfolio great, just as it is not a single player on a team that makes a team great,” he says.
The diversification and asset allocation strategies of a strong portfolio will hedge against risk while leaving room for market gains regardless of economic cycles and annual consumer spending events like Black Friday.
Keep an eye out for the Santa Claus Rally
The ripple effects of Black Friday, including reports of Cyber Monday sales figures, can also help fuel what is often called the “Santa Claus Rally” in the markets each year.
“The Santa Claus Rally is your typical end-of-the-year rally that lasts for the last five days of operations in December and the first two days of January,” says Simpson. “Helps the stock market close the year on a positive note due to anticipation of strong fourth quarter numbers.” Since 1950, the S&P 500 has risen about 1.3% each year during that period.
However, the Santa Claus Rally does not happen every year, and it is almost impossible to predict how strong or weak a rally will be. From 2008 to 2018, for example, the last five business days of the year saw changes in the S&P 500 from anywhere from 7.4% in 2008 to -3% in 2014.
However, that is not to say that November is not a good time to look to investments to complete your portfolio in key sectors.
“Looking back over the past 20 years, the fourth quarter, which includes Thanksgiving and Christmas, tends to be a positive seasonal period for stocks as strong spending drives economic growth,” says Sameer Samana, financial analyst Chartered Officer (CFA) and Senior Global Market Strategist at the Wells Fargo Investment Institute. That means investors who buy now can see profits before the end of the year.
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