The first appetizer for Thanksgiving 2024 may be a frenzy in the financial markets.
This Thursday, North America will celebrate Thanksgiving, with the holiday generally lasting from Thursday to Sunday, and many people will start their holidays on Wednesday. On the Wednesday before Thanksgiving, the market will face a "flood" of U.S. economic data, including housing sales data, revised GDP figures, and an important PCE inflation report.
However, as traders will reduce trading due to the holiday, the overall trading volume in the market is expected to be significantly lower than usual. The combination of these circumstances may lead to a significant increase in market volatility. The market will react extremely to any data that is slightly below or exceeds expectations, and there may even be instances of mispricing.
Nationwide is a company that sells mutual funds and other financial products. Its head of investment research, Mark Hackett, wrote in a report:
"The main event of the week occurs on Wednesday. Given the large amount of macroeconomic news and the reduction in trading as Thanksgiving approaches, we can expect to see unusual trading activity."
Wednesday will usher in a "flood" of U.S. economic data.
The low trading volume during the holiday will coincide with a large release of economic data. The main event on Wednesday starts at 9:30 PM Beijing time, when the U.S. releases the second estimate of GDP for the third quarter. In the third quarter, the U.S. economy grew steadily at an annual rate of 2.8%, and economists expect no revisions to this data.
Also released will be the initial unemployment claims data for the week ending last Saturday. The market generally predicts that the number of initial unemployment claims this week will be 216,000, slightly higher than the previous week's 213,000, but still showing a strong job market.
The centerpiece on Wednesday is undoubtedly the release of the October U.S. Personal Consumption Expenditures (PCE) price index at 11:00 PM Beijing time. This is the Federal Reserve's preferred inflation indicator.
Economists expect the overall PCE month-on-month to rise by 0.2%, and year-on-year to record 2.3%; excluding the volatile prices of food and energy, the core PCE is expected to rise by 0.3% month-on-month and record 2.8% year-on-year. Although the data may be slightly higher than the levels in September, it may be enough to reassure Federal Reserve officials that the overarching trend of gradually easing inflation remains on track.
Low trading volume will lead to significant market volatility.
According to statistics from the Dow Jones Market Data team, the average daily trading volume of stocks over the past 10 years is 7.2 billion shares, while the average trading volume on the Wednesday before Thanksgiving is only 5.95 billion shares. Black Friday, which is the day after Thanksgiving, usually has shortened trading hours, only trading until 1 PM local time, which is 2 AM Beijing time the next day, with an average trading volume of only 3.7 billion shares.
Over the past decade, the S&P 500 index has averaged a 0.2% increase on the Wednesday before Thanksgiving, with two-thirds of the time closing higher that day.
However, there are also precedents for large fluctuations. From 2007 to 2011, the market almost every year experienced fluctuations of over 1% on the day before Thanksgiving. This year, the market may see a repeat of this situation, mainly due to the importance of inflation data. Investors hope inflation continues to decline so that the Federal Reserve can continue to cut interest rates, Hackett said.
"Currently, this data is very important, so the market may have some emotional reactions."
Significant market volatility is often related to algorithmic trading, which relies on computer models to make instant decisions based on technical factors and data flows. However, T. Clifton Green, a behavioral finance researcher at Emory University, states that retail investors in U.S. stocks may remain unaffected by this. Although they usually react to volatility, what prompts them to take action is often company-specific news rather than macro news. Therefore, his advice is:
"I think everyone should enjoy Thanksgiving, okay? When investing in stocks, one should have a long-term vision, rather than focusing on minute-by-minute or daily trading."
Article reposted from: Jin Shi Data.
