The Thanksgiving Effect: Why the S&P 500 Historically Rises and What It Means for 2025

The S&P 500 has long exhibited a curious seasonal pattern around Thanksgiving: a consistent, if modest, upward bias. From 1928 to 2024, the index has gained in six out of every 10 Thanksgiving weeks, with an average return of 0.28% according to data. Over the past decade, Thanksgiving week outperformed the S&P 500's annual performance in seven of 10 years, including 2022, when the index fell 19.4% for the year but saw a relative rebound during the holiday week as reported. This trend is not merely anecdotal. Data from the last 50 years reveals an average return of 0.54% for Thanksgiving week, with the S&P 500 rising 68% of the time-well above the average weekly return of 0.16% according to analysis.

The Mechanics of the Thanksgiving Rally

The "Thanksgiving Effect" is rooted in a combination of investor psychology, reduced trading volume, and seasonal economic dynamics. From 1957 to 2024, the S&P 500 has averaged a 0.34% return on the day before Thanksgiving, closing higher 64.5% of the time according to historical data. The following day also posted a positive average return of 0.3% as observed. These gains are amplified in presidential election years, where the index has historically risen 75% of the time with an average return of 0.88% according to market analysis.

The holiday period also marks the start of the "Santa rally," a five-week stretch from Thanksgiving to New Year's that has historically delivered an average return of 1.46% according to research. This extended seasonal pattern is driven by a mix of tax-loss harvesting, portfolio rebalancing, and optimism about year-end performance.

Investor Psychology and Behavioral Biases

The Thanksgiving rally is not just a statistical anomaly-it is a product of investor psychology. Behavioral finance research highlights how holidays create a "therapeutic effect," reducing stress and elevating mood, which in turn lowers selling pressure and encourages risk-taking as studies show. Reduced trading volume during the shortened holiday week further stabilizes large-cap stocks, while thinly traded securities experience higher volatility according to financial analysis.

Consumer sentiment also plays a critical role. Black Friday and Cyber Monday, as the opening acts of the holiday shopping season, act as barometers for economic health. Strong retail sales in these periods often signal broader consumer confidence, which can lift sectors like e-commerce, logistics, and consumer discretionary according to economic research. For example, in 2020, the S&P 500 gained 16.3% for the year, with Thanksgiving week contributing to this momentum as noted.

Academic studies reinforce these behavioral dynamics. A 2023 paper in Scientific Direct found that investor sentiment during holidays is closely tied to optimism about consumer spending and year-end portfolio adjustments according to research. Another study noted that pre-holiday returns in the U.S. stock market are 23 times higher than on other days, challenging the Efficient Market Hypothesis and underscoring the role of psychological biases like overconfidence and anchoring as demonstrated.

What This Means for 2025

As we approach 2025, the Thanksgiving effect remains relevant but must be contextualized within broader macroeconomic trends. The Federal Reserve's policy trajectory, inflationary pressures, and global geopolitical risks could temper historical patterns. However, the interplay of behavioral finance and seasonal trends suggests that the S&P 500 is likely to see a modest rally during Thanksgiving week.

For investors, this period offers opportunities in sectors tied to holiday spending, such as retail and e-commerce. Companies like Walmart (WMT) and Amazon (AMZN) often benefit from Black Friday and Cyber Monday surges, which can drive short-term gains according to market analysis. Conversely, sectors less sensitive to consumer spending, such as financials or industrials, may see muted activity due to reduced liquidity.

Conclusion

The Thanksgiving Effect is a compelling example of how investor psychology and seasonal patterns shape market behavior. While historical data shows a consistent upward bias, investors should treat these trends as part of a broader strategy rather than guarantees. As behavioral finance research demonstrates, sentiment and risk tolerance are powerful forces-especially during holidays. For 2025, the key will be balancing historical insights with real-time economic signals to navigate the market's seasonal rhythms.