The first course for Thanksgiving 2024 could be a healthy serving of financial-market craziness.
Trading volume generally drops off on the day before Thanksgiving as people prepare for the holiday.
Wednesday, the day before the holiday, markets will face a flood of economic data, including home sales, a revision to gross domestic product, and an important report on inflation. But because traders will take time off for the holidays, volume will be far lighter than usual.
That combination offers a high potential for volatility. Markets will be prone to react to any slight miss or beat, and prone to mispricing.
“Wednesday is the main event this week as we can expect to see unusual trading activity, given the abundance of macroeconomic news and anticipated dearth of pre-Thanksgiving traders,” wrote Mark Hackett, chief of investment research at Nationwide, which sells mutual funds and other financial products to advisors.
Daily average stock-trading volume has averaged 7.2 billion over the past 10 years, but the average for the Wednesday before Thanksgiving is 5.95 billion, the Dow Jones Market Data team says. Average volume on Black Friday, typically a shortened trading session ending at 1 p.m., is 3.7 billion.
That low trading volume will collide with a heavyweight lineup of economic data, starting with the second estimate of third-quarter GDP at 8:30 a.m. Eastern. The economy grew at a solid 2.8% annual rate in the third quarter, and economists expect no revisions to that figure.
Weekly data on initial claims for unemployment benefits come out at the same time. The consensus forecast is for 215,000 claims for the week through Saturday, a slight uptick from the prior week’s 213,000, but still pointing to a robust labor market.
The focus will undoubtedly be the release of the October personal consumption expenditure price index—the Federal Reserve’s preferred inflation metric—at 10 a.m. Eastern. Economists have penciled in a 0.2% monthly rise in the headline PCE and a 0.3% increase in core PCE, which excludes the volatile prices of food and energy. That would be slightly higher than in September, but likely low enough to reassure policymakers that the trend toward less inflation is largely on track.
Also on the list are October’s durable goods data from the Census Bureau, which tracks orders of long-lasting items. Wholesale inventories and pending home sales, scheduled for 8:30 a.m. and 10 a.m., respectively, round out the lineup.
Over the past decade, the S&P 500 has risen an average of 0.2% on the Wednesday before Thanksgiving. The S&P 500 has ended the day higher more than two-thirds of the time.
But there is a precedent for bigger moves. The market moved more than 1% the day before Thanksgiving in almost all of the years from 2007 to 2011. Markets could see a repeat mostly because a lot is riding on the inflation data. Investors are hoping for continued disinflation, which would let the Fed continue to cut interest rates.
“The number is so important right now that there’s a chance that you do have this emotional reaction,” Hackett says.
Big swings in the market can stem from algorithmic trading, the use of computer models that make split-second decisions based on technical factors and the flow of data. But retail investors may sit this one out because even though they react to volatility, what drives them to act “tends to be firm-specific news and not macro news,” says Emory University’s T. Clifton Green, a researcher in behavioral finance.
His advice? “I think they should just enjoy their Thanksgiving, you know? Think longer term when you invest in stocks and not trade minute by minute or day by day.”
