Kaminsky's Call: Why Record-Low Volumes May Continue
Morgan Stanley, Vice Chairman
I cannot shake the potential ramifications of August's trading volume. Some passed the numbers off as typical of late summer, but let's not kid ourselves. "Seasonal" was not an excusable explanation here. Something is wrong and the record-low volumes were symptoms.
The past is the past, but I worry over the following question:
What if the volume doesn't come back and why should you care?
As we see more capital invested in ETF's (exchange-traded funds) over single-name stocks, the slippage could continue. If we go through September, October, and November at this rate, it will affect much more than broker commissions.
I have illustrated before the importance of the syndicate calendar and the success of IPO's as indications of a healthy market. When a portfolio manager sees money realized in a new issue allotment, that individual is more compelled to buy.
The same connection can be drawn to trading volumes, especially when it comes to liquidity.
If a portfolio manager feels the need to sell, liquidity will directly impact the success of the sale. What concerns me is that when the liquidity is not provided, the portfolio manager, frustrated by selling at lower prices, will be less inclined to buy.
It's a vicious cycle. Light volume equals more than apathy. It spells lack of trader confidence.
Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.
Gary Kaminsky does not hold any equity positions.
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