Stellar Data Amidst Dwindling Trading Volumes

This combination could lead to heightened volatility. If the data slightly falls short or exceeds expectations, the market will react sharply, and there may even be instances of mispricing.

The first course of the Thanksgiving feast in 2024 might be a wild banquet for the financial markets.

This Thursday, North America will celebrate Thanksgiving, with the holiday generally extending from Thursday to Sunday, and many people even taking leave on Wednesday. On the Wednesday before Thanksgiving, the market will be flooded with U.S. economic data, including housing sales figures, a revision of gross domestic product (GDP), and a crucial PCE inflation report.

However, with traders expected to reduce their activity due to the holiday, the overall trading volume in the market is anticipated to be significantly lower than usual. The confluence of these factors could lead to a marked increase in market volatility. The market is likely to react extremely to any data that slightly misses or exceeds expectations, potentially resulting in mispricing.

Markets closed on Thursday, early close on Friday.

Nationwide, a company that sells mutual funds and other financial products, has its investment research director, Mark Hackett, stating in a report:

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"The main events of the week take place on Wednesday, and given the influx of macroeconomic news and the reduced trading activity due to Thanksgiving, we can expect to see unusual trading activity."

The “flood” of U.S. economic data arrives on Wednesday.

Low trading volumes during the holiday will coincide with the release of a considerable amount of economic data. The highlight of Wednesday starts at 9:30 PM Beijing time, when the U.S. will announce the second estimate of third-quarter GDP. The economy is expected to have grown at a robust annualized rate of 2.8% for the third quarter, and economists do not anticipate any revision to this data.

Alongside this, initial unemployment claims data up to last Saturday will also be released. The market generally forecasts that initial claims will amount to 216,000, slightly above the previous week's 213,000, but still indicative of a strong labor market.

Heavyweight data on Wednesday

The standout data on Wednesday will undoubtedly be the October Personal Consumption Expenditures (PCE) price index released at 11:00 PM Beijing time. This is the Federal Reserve's preferred inflation gauge.

Economists anticipate that the overall PCE will rise by 0.2% month-on-month and 2.3% year-on-year; excluding the volatility of food and energy prices, the core PCE is expected to increase by 0.3% month-on-month and 2.8% year-on-year. While the data may be slightly above September's levels, it is likely sufficient to reassure Fed officials that the overarching trend of easing inflation remains on track.

Low trading volume will lead to significant market fluctuations

According to data from Dow Jones Market Data, the average daily trading volume of stocks over the past ten years has been 7.2 billion shares, while the average trading volume on the Wednesday before Thanksgiving has been only 5.95 billion shares. Black Friday, the day after Thanksgiving, typically sees reduced trading hours, closing at 1 PM local time, which is 2 AM Beijing time the following day, with an average trading volume of just 3.7 billion shares.

Over the past decade, the S&P 500 has averaged a 0.2% increase on the Wednesday before Thanksgiving, with two-thirds of those days closing higher.

However, there are precedents for greater volatility. From 2007 to 2011, the market experienced fluctuations of over 1% almost every year on the day before Thanksgiving. This year may see a repeat of such volatility, primarily due to the significance of the inflation data. Investors hope for continued declines in inflation, enabling the Fed to persist in lowering interest rates. Hackett cautioned,

"Currently, this data is extremely important, so the market may exhibit some emotional reactions."

Significant market fluctuations are often associated with algorithmic trading, which relies on computer models to make instantaneous decisions based on technical factors and data flows. However, T. Clifton Green, a researcher in behavioral finance at Emory University, notes that retail investors in the U.S. stock market may remain unfazed by this. Although they often react to volatility, what drives them to take action is typically company-specific news rather than macroeconomic news. Therefore, his advice is:

"I think everyone should just enjoy Thanksgiving, okay? When investing in stocks, it's important to have a long-term perspective rather than fixating on minute-by-minute or daily trading."