Markets may get a boost from cheery Black Friday consumer sentiment, seasonal strength

Santa Claus waves to the crowd during the Macy’s Thanksgiving Day Parade in New York City.

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It’s Thanksgiving time, and investors’ thoughts turn to holiday shopping and a year end Santa rally in the stock market.

Some analysts think both could be pretty good this year.

While Black Friday has probably lost some of its claim as the launch of holiday shopping, the Friday after Thanksgiving could provide an early glimpse of how much the consumer will spend this year. The National Retail Federation estimates sales should grow by about 4% in the holiday shopping season, enough to keep the economy rolling along.

JP Morgan analysts, in a note Friday, said they expect sales to be up 4.9% during the holidays, much stronger than last year, when sales gained just 1.9% and shoppers were discouraged by a major sell off in the stock market.

As for the stock market, it continues to reach for new highs, and some analysts say that shouldn’t change as the calendar progresses deeper into a seasonally strong time of year for stocks.

“I actually like adding to equities through the rest of the year,” said Cayman Wills, global head of equities at J.P. Morgan Private Bank.

Wills said she is looking for a better economy, with now no concern about a recession next year. As a result, she began adding to industrials in September and now expects manufacturing data to turn around, supporting her view. She said, if ISM manufacturing data improves Dec. 2, as she expects, industrial company stocks should go even higher.

The coming week is often a slow one, with markets closed Thursday for Thanksgiving and stock exchanges closing down early on Friday. Fed Chairman Jerome Powell speaks Monday night on the economy, and there are some economic reports worth watching, including durable goods and personal income and spending Wednesday.

A few final earnings reports are also expected, including Best Buy, HP, and Dell.

In the bond market, the Treasury auctions $113 billion in 2-year, 5-year and 7-year notes Monday, Tuesday and Wednesday.

Investors are also watching impeachment proceedings in the House, but analysts do not expect the potential impeachment of President Donald Trump to affect markets, since there is little chance he would be convicted by the Republican majority in the Senate.

Developments on trade talks between the U.S. and China, are by far the most important event for markets.

“It’s a call on trade in our view. You can’t really predict what Xi and Trump will do,” said Michael Schumacher, director rates, at Wells Fargo. The 10-year Treasury yield was at 1.75% Friday, from a high of 1.95% on Nov. 12. Rates have moved lower as concerns have increased that the U.S. and China will fail to reach a deal by Dec. 15, heading off a new round of tariffs expected to take effect that day.

But stocks have not reacted as much to disappointing trade headlines, and are instead looking forward to a new round of talks between U.S. and Chinese officials. The S&P 500 was roughly half percent away from its all time high Friday.

“Trade is the nugget that helped lead the market higher,” Wills said. “In August we were trading at 16 times [earnings], now we’re at 17.8 times. If the market took out the benefit we saw from trade, it would probably be about 8% lower. That’s not our base case.”

She expects to see some form of a phase one trade deal, and investors will continue to monitor every headline and tweet about trade talks. U.S. trade negotiators were invited to China to take part in a new round of face-to-face talks, according to the Wall Street Journal. On Friday, Trump said a deal was close.

“I think there will be continued positive momentum,” said Wills, adding that incumbent presidents know a good economy is important in an election year.

Stocks could ‘turkey trot’ higher

The week around Thanksgiving is often positive for stocks. “If we were using history as a guide, that means we could see the final leg of this turkey trot in the week of Thanksgiving where we end [higher], then spend the next week or so digesting the recent gain,” said Sam Stovall, chief investment strategist at CFRA.

Stovall said there likely will be a Santa rally this year, but the market typically dips in the middle of December before moving higher. “December is the best month [for the S&P 500]. On average, it’s up 1.6% and also has risen 76% of the time since World War II. It’s the highest price change and the best frequency for an up move of any month,” said Stovall.

Scott Redler of T3Live. com said it’s very likely there will be a Santa rally taking the market higher into the end of December. “A lot of analysts have a target of 3,200 for this year, but we were a little ahead of ourselves. A week of digestion is welcome. Traders are looking to make sure the market holds 3,070 to 3,090 to give more confidence that the Santa rally could bring it to 3,200 by year end. The question is can the market hold these levels,” Redler said.

The 3,090 level is the low from this past week, and the 21-day moving average, a momentum indicator, is at 3,075.

“This week stocks took a little bit of a breather. Next week has a better chance of being seasonally strong,” he said. “This week was more of a breather than a break that could have happened on trade talks.”

Retail will dominate in the week ahead, as markets watch the final group of store chains report earnings. Dollar Tree, Dick’s Sporting Goods and Best Buy report on Tuesday.

Target in the past week gave positive indications for the holiday shopping season, as did Walmart the week before. But Home Depot lowered its sales forecast when it reported earnings, and Macy’s slashed its outlook..

“There are six fewer days between Thanksgiving and Christmas but CFRA does not see this weighing on sales,” said Stovall. “Our analysts expect the tight time frame between Thanksgiving and Christmas will be a boon for retailers which have “buy-online-pickup-in-stores” capabilities.”

Retail sales are important since the consumer drives more than two-thirds of the economy.

“The peak of the season includes 27 days between Thanksgiving and Christmas compared to 33 days last year, which is the shortest since 2013. Notably, with Cyber Week and online penetration growing, this is less a risk than the days of yore while the shorter season will likely lessen the depth of the slowdown in early December,” the JP Morgan retail analysts wrote.