Thanksgiving Rally: Myth or Fact? - TheStreet

Like other holidays, U.S. Thanksgiving has received its own trading- and investing-related moniker over the years: The Thanksgiving Rally.

The concept is fairly straightforward: Whether it be the joy of the holiday and season or simply traders and investors tying up loose ends and securing positions ahead of the market close, stocks tend to rise rather than fall ahead of major holidays.

Or so the theory goes.

Not exactly, nor precisely, says Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, which like the Farmer's Almanac forecasts trends and patterns in the U.S. stock market.

Up to 1987, there was indeed evidence of a fairly predictable Thanksgiving rally, where stocks consistently moved higher on the third Wednesday of November - and continued on Friday and even through the following week as investors took heart of expectations of strong earnings and profits, particularly among retailers. 

However, the pattern disappeared post-1987, noted Hirsch, replaced by a more "choppy" historical trend of stocks evening out either to the upside or downside - depending on which direction they were going in leading into the holiday. 

According to Dow Jones market data, the broad-based S&P 500 has been up every week of Thanksgiving since 2012 and the S&P 500 has finished every Wednesday-Friday higher since 2012. U.S. markets are closed on Thursday and have an abbreviated session on Friday.

Turkey in Disguise?

But between 1987 and 2012, there was no distinct pattern showing that stocks generally moved upward, said Hirsch, pointing to periods when stocks rose ahead of the holiday, then fell afterward, and vice versa.

As of Tuesday's market close, both the Dow Jones Industrial Average and the S&P 500 had erased all of their 2018 year-to-date gains, while the Nasdaq clung to a 0.1% gain on the year. Month-to-date, the Nasdaq had fallen 5.4%, while the S&P and Dow had dropped 2.6%.

Monday's decline resulted in the S&P 500 and the Dow's worst start to a Thanksgiving week since 2011, while the Nasdaq registered its worst such start since 2000, according to Dow Jones Market Data. The S&P 500 dropped 48.84 points, or 1.8%, to 2641.89 and the Dow Jones Industrial Average fell 551.80 points, or 2.2%, to 24465.64, both closing in the red for the year. The Nasdaq Composite declined 119.65 points, or 1.7%, to 6908.82.

With Wednesday's rebound, however, it does indeed appear that a Thanksgiving rally is at hand, noted Hirsch, though given this month's declines, a more "middling" market appears to be playing out, driven by lighter trading volumes and a closing off of positions ahead of the market close.

So is the Thanksgiving Rally a thing, or is it just a turkey in disguise?

For this year at least, yes.

"The Thanksgiving trade is one thing, but there's lots of other more bullish trading days in the year," said Hirsch. Having downward action, though, really does set it up as a Thanksgiving rally nicely."