The U.S. Market Holiday Schedule and Its Impact on Investor Behavior

The U.S. stock market's holiday schedule, particularly around Thanksgiving, exerts a unique influence on short-term volatility and investor psychology. As markets close on Thanksgiving Day and trade for only a half-day on Black Friday, trading volumes typically contract, amplifying price swings and reshaping decision-making patterns. This year, with the S&P 500 and Nasdaq Composite already navigating concerns about AI-driven valuations and Federal Reserve policy, the interplay between reduced liquidity and investor sentiment becomes even more critical.

Reduced Trading Volumes and Volatility

The Thanksgiving week of November 2025 is expected to see trading volumes drop by 25–30% compared to a typical week, driven by the closure of markets on November 27 and a truncated session on November 28. Historical data underscores this pattern: since 1928, the S&P 500 has posted positive returns in roughly 60% of Thanksgiving weeks, averaging a modest 0.5% gain. However, the reduced liquidity during this period often exacerbates volatility. With fewer participants in the market, even minor news events or trades can trigger outsized price movements. For instance, delayed economic data releases-such as producer inflation or retail sales-can disproportionately sway investor sentiment when liquidity is constrained.

This dynamic was evident in 2025, where the S&P 500 and Nasdaq Composite experienced a four-day rally ahead of Thanksgiving, fueled by optimism over a potential Fed rate cut in December.

Yet, November as a whole remained a challenging month, with concerns about high valuations and AI spending dragging on broader market performance. The juxtaposition of strong short-term gains and a weak monthly outlook highlights how holiday-driven liquidity shifts can create divergent narratives for investors.

Investor Psychology and Behavioral Patterns

Behavioral finance studies reveal that holidays like Thanksgiving act as a "therapeutic effect" on investor sentiment, temporarily boosting optimism as traders take a break from the stress of daily market fluctuations. However, this effect wanes as the holiday extends, with sentiment stabilizing rather than intensifying-a phenomenon termed the "hygienic effect." The reduced trading volume also creates a feedback loop: lighter activity can lead to fewer trades which in turn reduces the spread of information, further insulating investors from real-time market pressures.

This psychological shift is compounded by the "Thanksgiving Rally," a historical tendency for markets to rise during the week. Retail stocks, in particular, benefit from the anticipation of holiday sales, with companies like Amazon, Walmart, and Target often outperforming the broader market. Conversely, sectors lacking strong omnichannel strategies face heightened risks during this period. The 2025 holiday season, however, is marked by added uncertainty. Tariffs, inflation, and AI-driven market skepticism have dampened consumer sentiment, with some analysts predicting a "soft holiday season" despite overall spending exceeding $1 trillion.

The 2025 Context: A Tenuous Balance

The 2025 Thanksgiving week exemplifies the delicate balance between optimism and caution. While the S&P 500 and Nasdaq Composite have outperformed their 10% annual average through November 21, concerns about AI valuations and macroeconomic headwinds persist. The shortened trading week has also intensified focus on the Federal Reserve's December rate decision, with delayed economic data further fueling speculation about a 25-basis-point cut.

Investor behavior during this period reflects a mix of strategic positioning and emotional response. Institutional investors, often absent due to the holiday, leave the market more susceptible to retail-driven momentum. Meanwhile, the truncated Black Friday session-closing at 1:00 p.m. Eastern Time-creates a compressed window for decision-making, amplifying the impact of last-minute trades.

Conclusion

The U.S. market's holiday schedule, particularly around Thanksgiving, serves as a microcosm of broader behavioral and structural forces. Reduced trading volumes heighten volatility, while investor psychology oscillates between optimism and caution. For 2025, the interplay of these factors-against a backdrop of AI-driven uncertainty and Fed policy speculation-underscores the importance of understanding seasonal patterns. Investors navigating this period must weigh historical tendencies against real-time macroeconomic signals, recognizing that the Thanksgiving week, while historically benign, can still amplify market extremes when liquidity is constrained.