According to Bank of America (BofA) Global Research, U.S. stocks typically perform well during Thanksgiving week, with even stronger gains observed in presidential election years. “Seasonality suggests that Thanksgiving week can be a strong week,” said Stephen Suttmeier, BofA’s technical research strategist, in a recent note. Historical data shows that since 1928, the S&P 500 has risen 60% of the time during Thanksgiving week, with an average gain of 0.28% and a median gain of 0.46%. In presidential election years, the index has performed even better, climbing 75% of the time with an average return of 0.88% and a median gain of 1.08%. While the S&P 500 often experiences a pullback the week after Thanksgiving—particularly in election years, when it has declined 67% of the time with an average loss of 1.12%—Suttmeier notes that these dips historically precede strong year-end rallies. From Thanksgiving through New Year’s Eve, the S&P 500 has posted gains 75% of the time in election years, with an average return of 1.38% and a median gain of 1.60%. The market’s momentum in 2024 reflects these trends. Year-to-date, the S&P 500 has surged 25.5%, according to FactSet. While historical data from Bespoke Investment Group shows that strong year-to-date gains can temper Thanksgiving week’s returns—bringing them closer to the long-term average—investors may still find opportunities in the anticipated post-holiday rally. As of Monday, the S&P 500 rose 0.3%, closing at 5,987.37, just shy of its record high of 6,001.35. The Dow Jones Industrial Average climbed 1% to a fresh all-time high, while the Nasdaq Composite added 0.3%. Despite a relatively light economic and earnings calendar this week, key data releases are expected on Wednesday ahead of the Thanksgiving holiday, followed by a shortened trading session on Friday. Given the market’s historical patterns, the Thanksgiving-to-year-end period remains a promising window for investors to consider.

Tariffs and Inflation: BNY Wealth CIO Says It’s ‘Far Too Early’ to Predict Significant Impact Inflation Concerns Resurface as Investors Eye Policy ShiftsU.S. financial markets are grappling with renewed inflation fears following President-elect Donald Trump’s victory, as investors weigh the potential impact of proposed policies like tax cuts and import tariffs. These measures, some argue, could exacerbate the fiscal deficit and fuel inflation. The 10-year Treasury yield has risen 14 basis points since Nov. 6, reflecting these concerns. However, markets have shown resilience: the S&P 500 has gained over 3%, the Dow Jones Industrial Average nearly 5%, and the Nasdaq Composite around 3%, according to FactSet. Yet, uncertainty lingers as investors try to decipher mixed signals from various asset classes. Oil and Gold Respond, but Inflation’s Role Remains CloudedOil and gold prices have surged recently, although analysts attribute much of the movement to geopolitical tensions rather than inflation fears. U.S. crude oil futures jumped 6.5% last week to settle at $71.24 a barrel, while gold, often seen as an inflation hedge, posted a 5% weekly gain, closing at $2,712.20 an ounce. Brian Szytel, co-CIO at the Bahnsen Group, suggested that Trump’s pro-energy policies could increase supply and weaken the traditional link between oil prices and inflation. Value, Growth, and Small Caps: Market Shifts in FocusIn periods of inflation, value stocks often outperform growth stocks, as seen during 2022’s inflation surge. The Russell 1000 Value Index outpaced its growth counterpart last year, and it rose 2.4% last week compared to the Russell 1000 Growth Index’s 1.7% gain. However, analysts like Szytel argue that value stocks are currently attractive more for their valuation dynamics than inflation concerns. Meanwhile, small-cap stocks, which typically benefit from reflation and economic growth, have outperformed in recent weeks. The Russell 2000 Index climbed 4.5% last week, supported by optimism around Trump’s tax-cut proposals and a potential resurgence in domestic manufacturing. Tariff Impact: Too Soon to Draw ConclusionsSinead Colton Grant, CIO at BNY Wealth, cautioned that it’s “far too early” to conclude that tariffs will lead to “significantly higher inflation.” She noted that market signals across asset classes remain mixed and suggested that policy measures are unlikely to exacerbate inflation significantly, given voters’ sensitivity to rising prices. Grant also pointed out that upcoming data, including Wednesday’s personal consumption expenditures price index, could shape the market narrative. A higher-than-expected reading may dampen sentiment and challenge the stock market’s year-end rally. Key Earnings Reports AheadAs the Thanksgiving holiday approaches, the earnings calendar includes major retailers like Best Buy, Macy’s, and Nordstrom, as well as tech giants like Dell and CrowdStrike. These results could provide fresh insights into consumer sentiment and corporate performance amid lingering inflationary concerns.

High Valuations Raise the Stakes as Q4 Earnings Forecasts Decline As the year winds down, Wall Street analysts are once again trimming their profit forecasts for the next calendar year—a common practice during the fourth quarter. By mid-November, estimates for S&P 500 earnings in 2025 had fallen to $274.96 per share, down from $279.68 in June and $276.66 in September, according to FactSet. While it’s typical for earnings projections to dip late in the year, this year’s revisions have come at a slightly faster pace than usual. Since the start of Q4, forecasts have dropped 0.6%, aligning with the 15-year average but outpacing the five-year trend, notes FactSet’s John Butters. Ordinarily, these adjustments garner little attention from investors, who focus more on actual earnings reports. However, with the S&P 500 trading at a historically high 22 times forward earnings, the stakes are elevated. Further downward revisions could sap confidence in the market’s ability to deliver double-digit profit growth. Elevated Risks Amid Lofty Valuations “The stakes are higher because valuations are higher,” says James St. Aubin, chief investment officer at Ocean Park Asset Management. Analysts are projecting S&P 500 earnings growth of 12% for 2025, compared to 9.4% for 2024. While these figures remain optimistic, any continued weakening in forecasts could amplify market pressure. Recent declines in the market underscore these concerns. Investors are grappling with the likelihood that the Federal Reserve may take a slower approach to cutting interest rates. Coupled with falling profit expectations, this dynamic could create a headwind for equities in the near term. Broader Earnings Growth Faces Challenges Optimism for a broader earnings recovery beyond Big Tech in 2025 has also dimmed. While technology and communication services companies have seen improved profit outlooks, other sectors, including healthcare, consumer staples, energy, and utilities, have faced downward revisions. This trend underscores the ongoing concentration of earnings growth among a few major players, such as Nvidia, which has led the charge in driving the S&P 500’s gains over the past year. Meanwhile, small-cap stocks, which had shown early signs of recovery, are seeing diminished profit expectations, further challenging hopes for a more inclusive market rebound. Policy and Economic Uncertainty Add to Risks Beyond earnings revisions, broader economic and policy uncertainties loom. While potential corporate tax cuts and deregulation could bolster profits, risks such as renewed trade tensions under a Trump administration could disproportionately impact large-cap companies with significant international exposure. “The risk of trade wars and tariffs could become a significant drag on multinational corporations,” warns St. Aubin. Market Sentiment at a Turning Point Looking ahead, investors face critical questions about whether companies can deliver on expectations for double-digit profit growth. Any signs of narrowing earnings beats or continued revisions downward could weigh heavily on sentiment, particularly in an environment of high valuations and macroeconomic uncertainty. “The optimism around earnings has been one of the few bright spots keeping markets afloat,” notes Josh Emanuel, CIO at Wilshire. As pressure mounts, the coming months could test the resilience of bulls in a market already facing significant headwinds.