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When the holiday season arrives, many people quickly jump to thoughts of gift-giving, family meals, and cozying up by a warm fire. But savvy business executives and investors have their thoughts focused somewhere else: profit.

The holidays are a financial boon for retailers and other industries. So the holidays can be a lucrative time to invest. This starts with “Black Friday,” the day in retail lore when companies move from the “red” of losses into the “black” of profitability for the year. Read on to learn more about investing in pursuit of your own merry Christmas on the stock market.

The Santa Claus Rally and January Effect

Traditionally, stocks perform well on certain days during December and over the course of January. For example, the January Jump, or January Effect, is an investment theory based on an analysis that shows markets historically outperform in January.

There are several explanations as to why the markets tend to do well in January. These include holiday bonuses and New Year optimism. Some analysts suggest the price rises may be due to tax-loss harvesting. As always, you can consult a financial advisor (you can find one via Paladin Registry) to utilize this for your own favor.

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Christmas stock market trends

When you think of where people spend the most money over the holiday season, you may come across a strong investment thesis. While things may be a bit wonky in 2020 due to the COVID-19 pandemic, overall holiday season trends may be strong for the following industries.

We don't endorse or recommend any specific stocks or funds. But if you are looking at major sectors to invest in during the holiday season, here are some examples of large and noteworthy stocks in those industries.

Please do your own research and risk assessment before putting money into any stock you see recommended on the internet.

1. Retail

In past years, consumers lined up around the block for Black Friday's doorbuster deals. These days though, those lines have been replaced by mobile apps and web browsers. Yet people are still shopping in force.

According to Deloitte, holiday season, retail sales for 2020 should land around $1.15 trillion. And it predicts online sales will see a 25% to 35% year-over-year increase.

Those massive sales will likely benefit retailers in several sectors you can invest in. These include:

  • Electronics
  • Home furnishings
  • Apparel
  • Automotive
  • Big-box retailers that sell a little of everything.
  • Grocery sellers may also see an uptick as families cook up a holiday feast.
  • Companies that sell their own direct-to-consumer products are also worth considering

Best stocks to invest in retail

In retail, the two titans are Amazon and Walmart. Amazon has a clear grip on e-commerce. But brick-and-mortar leader Walmart won't give up its market share to Amazon without a fight. Other large retailers like Target, Best Buy, and Costco round out the big-box retail space.

For more niche and small business opportunities, consider platforms like Etsy and Shopify. These connect small businesses and creators with larger customer bases online.

2. Shipping and delivery

With online sales going up at least 25%, someone has to bring all of those packages to your home. Amazon is a rarity that will deliver its own packages to your door. Most others rely on major shipping companies.

Shipping delays can be frustrating for customers waiting for gifts to arrive. But those millions of packages are all revenue for America's biggest shippers.

And now another crop of companies has emerged that offer same-day shipping services and restaurant delivery. These will get goods (and meals) to your door even faster. Most families cook their holiday dinners. But there's still a good chance someone will also want delivery during the holiday season.

Particularly since COVID-19, meal and same-day product delivery stocks could be worth looking into as a potential holiday investment.

Best stocks to invest in shipping and delivery

Traditional shipping giants UPS and FedEx are straining to keep up with an explosion of online shipping amidst COVID-19. For an international competitor, consider Germany-based DHL.

Quick service meal and retail delivery companies that could see strong holiday results include Uber, GrubHub, and DoorDash. Just be careful of inflated share prices and risk in fast-growing companies that struggle to generate profits.

3. Investing in the supply chain

When you think of a technology retailer, you probably think of end products like computers and smartphones. When you think of jewelry retailers, you probably think of high-end luxury brands. But before those products were an iPhone and a Tiffany necklace, they were raw materials that had to be made somewhere.

If you think jewelry sales will be strong this season, for example, consider investing in a precious-metal mining company. If you think this is the year of 5G, look at the chip manufacturers and other component producers up the supply chain as potential holiday investments as well. You can always use paper trading account, such as TD Ameritrade‘s thinkorswim's paperMoney, to simulate the market and test specific investing strategies.

Further reading: Paper trading account

A word of warning: Avoid a lump of coal in your brokerage account

Remember that short-term investing with strategies like these can be quite risky even if they have worked well for others in the past. Some investors are all-in on trying to capitalize on seasonal trends, while others are critical of the idea.

If you decide to engage in a short-term trading strategy, it's important to understand the risks involved. There are no guarantees in the stock market. So it may be best for some investors to avoid looking for a seasonal stock price boost in busy industries that do well during a particular time of the year.

If your analysis shows that a stock is a good investment, it is likely a good investment far beyond January. After all, every investor should think about long-term investing.

Further reading: Buy and hold vs. active trading

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About the Author

Eric Rosenberg

Eric Rosenberg

Freelance Contributor

Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.

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