Navigating U.S. Market Volatility Around Thanksgiving: Positioning for Early Data Releases and Liquidity Risks

According to a report by , the S&P 500 has historically demonstrated a positive bias during Thanksgiving week, with gains in seven out of the past 10 years relative to its annual performance. This phenomenon, often termed the "Thanksgiving Rally," averages roughly 0.28% for the index since 1928. However, this bullish bias coexists with sharply reduced liquidity. Trading volumes typically fall to 80% of normal levels on the day before Thanksgiving and plummet to as low as 45% on Black Friday. Such thin liquidity amplifies price swings, particularly in thinly traded securities, creating both risks and opportunities for investors.

Early Economic Data Releases: A Volatility-Suppressing Force?

While reduced liquidity often raises concerns about volatility, early economic data releases during Thanksgiving week have historically acted as a counterbalance. reveals that key reports like Non-Farm Payrolls (NFP) tend to suppress implied volatility, with the VIX and MOVE indices typically closing lower on these days. This pattern holds for most releases, even when adjusted for magnitude. However, exceptions exist: the Services ISM and PCE report can elevate equity volatility, while the Manufacturing and Services ISMs may heighten rates volatility. Investors must remain vigilant, as these exceptions can disrupt otherwise stable market conditions.

Strategic Positioning: Sector Rotations and Liquidity Cycles

To leverage Thanksgiving's unique market environment, investors should align their strategies with seasonal liquidity cycles and sectoral trends. Data from indicates that backtested seasonal trading strategies yield historical average gains of 0.51% when entering trades at the close of Tuesday and exiting at the close of Black Friday. Sectors like retail, travel, and hospitality often benefit from increased consumer spending during the holiday season, making them attractive for positioning.

Sector rotation strategies further enhance adaptability. During early economic expansions, sectors such as industrials, financials, and consumer discretionary tend to outperform due to rising capital expenditures and credit expansion. Conversely, defensive sectors like utilities and healthcare gain traction in late cycles or recessions. Technical indicators such as moving averages and relative strength measurements help validate these rotations.

Hedging Liquidity Risks: Tools and Tactics

Mitigating liquidity risks requires a combination of tactical execution and hedging tools. Futures traders are advised to reduce trade sizes or widen stop-loss levels to account for amplified intra-day swings. Options-based strategies, particularly those offering asymmetric protection, are also recommended in thin markets. Avoiding overleveraging before major announcements or extended closures is essential to managing exposure to sudden shocks.

For example, the MSCI semi-annual rebalance on November 25, 2025, is expected to temporarily boost global trading volumes. However, Thanksgiving's delayed timing in 2025 may limit this liquidity boost. Investors are advised to execute major trades before mid-December or wait until early January when liquidity normalizes.

Conclusion: A Holistic Approach to Thanksgiving Volatility

Navigating U.S. market volatility around Thanksgiving demands a multifaceted approach. By understanding historical liquidity patterns, leveraging early economic data releases, and employing sector rotations and hedging techniques, investors can position themselves to capitalize on the "Thanksgiving Rally" while minimizing risks. As always, aligning strategies with macroeconomic signals and institutional liquidity calendars remains paramount in this dynamic period.