It's The Most Wonderful Time Of The Year

| About: Consumer Discretionary (XLY)

Well another holiday season is upon us. At least that is what I have been told by all of the commercials on television this weekend. Hope seems to spring eternal during the holiday season and I have to admit that over the last 15 years I have noticed a similar feeling of optimism, regardless of current market conditions, when it comes to the stock markets.

Hysteria will soon begin the day after Thanksgiving as Americans celebrate that unofficial holiday called "Black Friday". I have to admit, I have never shopped on Black Friday but I do enjoy the excitement that the day provides. This led me to wonder if the optimism is for real, and if so, is there a way to make a little profit.

I decided to look at the historical returns of the Consumer Discretionary Select Sector SPDR ETF (NYSEARCA:XLY) from Black Friday to the end of each calendar year. I thought an all-encompassing ETF such of this would truly capture the euphoria of the holiday shopping season rather than a retail specific index. After all, holiday shopping seems to be more of an event where shopping quickly turns into dinner, a movie, and who knows what else. The results of my study were quite compelling, and are as follows:

XLY (inception date 12-16-98)

  • 1999 Black Friday thru 12-31-99 +9.0106%
  • 2000 Black Friday thru 12-29-00 +10.1996%
  • 2001 Black Friday thru 12-31-01 +4.4802%
  • 2002 Black Friday thru 12-31-02 -8.655%
  • 2003 Black Friday thru 12-31-03 +3.9821%
  • 2004 Black Friday thru 12-31-04 +2.9504%
  • 2005 Black Friday thru 12-31-05 -2.4764%
  • 2006 Black Friday thru 12-31-06 +1.5603%
  • 2007 Black Friday thru 12-31-07 -1.4313%
  • 2008 Black Friday thru 12-31-08 +5.4987%
  • 2009 Black Friday thru 12-31-09 +4.1362%
  • 2010 Black Friday thru 12-31-10 +3.3353%

On the surface these gains may not look like much, but they add up to a compounded return of 36.026% over just 430 days or 1.178 years in the market. That works out to an average annual return of 29.845%. The markets have historically been a decent place to be in the month of December. However, the performance of XLY during these 430 days significantly outperforms the S&P 500 Index which provided an average annual return of 13.742% for the same period of time.

Obviously we do not know what the future holds, but the data suggests that buying XLY before the markets close on the Wednesday before Thanksgiving, may be a wise short-term investment each year. Couple that with the fact that many of the stocks that are found in XLY have been some of the biggest gainers YTD, then we may also see an additional push in these stocks as fund managers try to window dress their portfolios.

Happy Holidays everyone!

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XLY over the next 72 hours.