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Weighing The Market Hype Of Black Friday

There is a perception that Black Friday can provide insight into the retailer sales for the entire holiday season. Essentially, if sales are booming on that day, investors may take that as a sign to buy shares of successful retailers, believing that successful Black Friday sales can lead to a general rise in the stock market through the New Year.

So the question is, how much should you rely on stock price changes following Black Friday? Do those changes mean anything or are they just a hype?

A 2010 article written by Mark Hulbert at MarketWatch casts doubts on the assumption that a rise in stock prices following Black Friday has a positive effect on markets for the rest of the year. He offers his own findings which show that there is actually no correlation between stock prices after the Friday and Monday following Thanksgiving and stock prices at the end of the holiday season. (No word on how the January Effect may play into this trend)

On the contrary, Hulbert says that recent trends have shown a negative correlation. Perhaps because too many people fall into this hype and push stock prices up when the underlying value of the companies they represent cannot keep up with that rapid increase.

However, this year, there has been an interesting facet to Black Friday shopping that was not as important in 2010, when Hulbert did his research. And that facet is online shopping. Last year, about 40% of total spending on Black Friday was spent online. This year retailers are giving really awesome deals online and even the same deals as in-store to make sure they don’t lose out to competitors. The most likely effect of this is much higher sales this Black Friday. And a lot of investors will be very eager to grab a share of the huge profits these retailers are going to make. But one caveat, since Black Friday sales don’t always predict sales for the rest of the year, don’t be surprised if stock prices begin to fall again. Potential investors may want to invest now and sell them quickly as soon as prices begin to rise.

Another aspect of this year’s Black Friday shopping is the pure luxury that is being offered to many in-store shoppers. Some malls and retailers offer VIP parking and lounges for their customers and free refreshments. Apparently, one mall offered all those and more for a low fee of only $10 but they will not be doing that again this year – maybe because they made huge losses?

Looking to follow the Black Friday and Cyber Monday hype? As highlighted in the animated video above, these are some names to consider adding on your watchlist:

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