Black Friday brings in a lot of money for retailers, but what about investors? Read this before you make any portfolio changes.

Another Black Friday is quickly approaching. While most are focused on the hope of deep discounts on major purchases, isn’t it also time to investigate the best stocks to buy for Black Friday? After all, Black Friday is more than just a day anymore. Many retailers get a jump on the day, offering deep discounts as much as a week early. In a real way, Black Friday has become a mini-season all its own, which is why it has such a big impact on retail sales.

But does it have any real effect on stocks?

There’s a lot of hype and speculation, and for the long-term investor, it’s really a lot of fuss over nothing. In the end, Black Friday is a single event, and few companies’ year-long fortunes turn on an event, especially a sales event that lasts only a few short days.

Still, stocks and Black Friday warrants a discussion.

The Stocks That MAY Benefit from Black Friday

Despite the fact that Black Friday is hardly a game changer for the stock market, there are certain stocks that may warrant closer attention. Obviously, retail chains are at center stage. But you have to be very selective even if you go that route. You probably already know if a given retailer will do well during Black Friday weekend. If they have a strong product line going into the holiday season, one that’s generating a lot of buzz and rising sales, Black Friday may only strengthen their case.

Examples of retailers include:

• Amazon (AMZN)
• Macy’s (M)
• Nordstrom (JWN)
• Walmart (WMT)
• Target (TGT)
• JC Penny (JCP)
• Kohls (KSS)

There are also certain types of retailers that tend to do especially well during Black Friday, and the holiday season in general. For example, electronics are typically a big seller. Due to their usual high cost, electronics, including entertainment equipment and computers, tend to do very well with Black Friday shoppers. Examples of electronics companies include:

• Best Buy (BBY)
• Apple (AAPL)
• Microsoft (MSFT)
• GameStop (GME)

Another group of specialized retailers that stand to benefit from holiday sales are major jewelry, cosmetics and sporting goods store chains, since all are major gift items for the holidays. Examples of specialty retailers include:

• Signet (SIG) (corporate parent of Jared, Kays and Zales)
• Pandora (PANDY)
• Ulta Beauty (ULTA)
• Estee Lauder (EL)
• Coty (COTY) (corporate parent of Opi, Covergirl and Sally Hansen)
• Dick’s Sporting Goods (DKS)

But one sector you may not have given much thought to is restaurants. With so many people out shopping all day Black Friday and into the weekend, people need a place to eat–or to take a break from shopping. Restaurants are a natural choice, and certain chains may see an increase in holiday sales as a result.

Examples of major restaurant chain stocks include:

• McDonald’s (MCD)
• Dunkin’ Brands (DNKN)
• Bloomin’ Brands (BLMN) (Outback Steakhouse)
• Darden Restaurants (DRI) (corporate parent of Olive Garden and LongHorn Steakhouse)
• Texas Roadhouse (TXRH)

And of course, with so many people shopping online these days, Amazon seems like a sure bet no matter what’s happening with the big retail chains (which is why it’s at the top of our list of retailers!).

How is the Stock Market Affected By Thanksgiving and Black Friday?

In the grand scheme of things, the stock market is not heavily affected by Thanksgiving and Black Friday.

Perhaps the biggest effect of Black Friday on the stock market is in this predictive value. A strong Black Friday can be an indication of a strong holiday season. In the retail sector, the holiday season can make or break the entire year. If Black Friday is strong, it’s likely sales will be strong for the season, leading to increased revenues and earnings.

But there’s more than a bit of speculation in that assumption. That’s the way it will work if Black Friday indicates a rising sales trend. If it goes in the other direction, and sales come in below expectations, it could be an indication of a weaker-than-expected holiday season. If that’s the case, the retail sector may experience a bad quarter and a bad year overall.

Compounding the problem is that such sentiment can carry into the new year. After all, fourth quarter performance is a strong indicator of what will play out in the coming year. That may be more significant in the retail sector than any other.

What Stock Investors Should Do When Black Friday Comes

For the most part, if you’re a long-term investor, about the only thing you should do on Black Friday is go shopping looking for deals like everyone else. If you’ve already set your investment allocation, you’ll want to stick with it through relatively minor events, like Black Friday.

There’s nothing about this shopping event that should motivate you to materially change your portfolio. Whatever allocation you deemed appropriate throughout the year should be exactly where you stay.

If the stocks you’re currently holding in your portfolio are fundamentally sound, there’s no need to make a change based on the upcoming holiday season.

If there is any insight to be gained, it might be that the stock of a retailer that has been struggling all year might be worth selling if it experiences lackluster sales during Black Friday. That could be an indication the company will continue to struggle going into the new year. Of course, every other investor will be aware of the same situation, so it’s unlikely you’ll get the jump on selling.

Playing the Historical Bounce – December and January

Apart from any potential retail plays over the Black Friday week, there may be something of a short-term strategy at this time of the year. Historically, stocks stage a year-end rally, that carries into the new year. Increasing your portfolio in November and early December might provide something of an upward bounce in the next few months.

Based on the graph below, which includes data from 1928 through 2018, it turns out September is historically the worst month in the stock market, losing an average of 1%. But the market then turns modestly higher in October and November, before staging a two month rally in December and January, that represents the strongest two month stand of the year. Combined, December and January have provided an average market lift of 2.5% (1.1% in January, plus 1.4% in December) according to the findings from Yardeni Research Inc.:

Rather than focusing on any bounce that might result from certain retail stocks that might benefit from Black Friday holiday, it might be more a matter of positioning for a general market upturn. If there is a play during this holiday week, that one might be the most predictable.

How Much of Your Portfolio Should You Commit to Black Friday Stocks?

Realistically, if you’re generally satisfied with your investment portfolio, the only strategy–and it’s a minor one at best–may be to put a very small amount of your portfolio into the stocks of companies you think will do extraordinarily well through the holiday season. But even that is probably a decision you’ve already made. Otherwise, you can feel free to ignore your portfolio and jump into the Black Friday fray with the crowd.

If you do decide to adjust your investments, or if you don’t already have a portfolio and you’re ready to begin investing, here is our list of best online discount brokers:

• E*TRADE: Great for any investment style
• Ally Invest: Best for new investors
• TD Ameritrade: Ideal for more experienced traders

When all is said and done, Black Friday is more of a shopping event for consumers, than it is an investment indicator for investors. At least in the immediate term.

Topics: Investing

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