Will Robust Consumer Holiday Spending Save the U.S. Markets?

It was a holiday-shortened week as U.S. investors took a day to give thanks for what they have. Perhaps they should’ve given thanks for what they “had” because intense selling pressure led to U.S. stocks posting their worst Thanksgiving-week performance in seven years. That wasn’t the only accomplishment of the week. U.S. stock markets also took out their October lows, while turning lower for the year.

For the week, the benchmark S&P 500 Index settled at 2632.56, down 3.8%. The blue chip Dow Jones Industrial Average finished at 24285.95, down 4.4% and the tech-driven NASDAQ Composite closed at 6939.47, down 4.3%. For the year, the S&P 500 and Dow are down 1.5% and 1.8% respectively. The NASDAQ is currently eking out a 0.5% gain.

Although Thanksgiving was Thursday, the bears feasted throughout the week on a steady flow of negative events. Contributing to the plunge was another steep drop in tech stocks, widening corporate bond spreads, tumbling crude oil prices and disappointing earnings from retailers.

Helping to cushion the U.S. markets a little was a stabilizing performance in the international stock markets. Higher bond prices also helped soften the blows.

Consumer Spending is Key Economy Driver

Many stock market bulls shrugged off last week’s performances, attributing the price action to thin, holiday trading conditions. They feel that when the major banks and institutions return this week, the selling pressure will not be as pronounced. They also feel that even the most bearish traders will not sell weakness. Some are even building a case for a strong rally this week because of bargain-level stock prices.

While buyers may be attracted to the low prices. This may be only enough to stop the price slide. It may take reports of better-than-expected Thanksgiving Day, Black Friday and Cyber Monday sales to actually drive the stock market higher and at least temporarily, take investors’ minds off of the negatively in the market.

It is often said that consumers are the linchpin of the U.S. economy, so retail sales during this holiday season are likely to be an important barometer of growth. Consumers have a lot going for them including high employment, rising wages, tame inflation and lingering tax-stimulus dollars. Now it’s up to them to spend their money. If they are able to put up some blow-out numbers at the start of the holiday season then maybe they will be able to turn the stock market around.