Where has all the volume gone? There may be some simple explanations.
In the last few days, as the markets have focused on earnings and paid less attention to geopolitics, stocks have risen. The S&P 500 was up in five of the last seven days. Traders seem much less worried. Volatility, which has been elevated since early February, has collapsed, as the VIX has gone from 20 to 15.
The good news is that when the market turns inward and looks at earnings and guidance, it likes it what it sees.
But the bad news is trading volume has withered even as the markets have advanced. Volume was strong for a good part of February and on some days in March, but overall volumes have been declining for some time. Friday and Monday were the two lowest-volume days of the year at the NYSE.
Why aren't traders more enthusiastic about buying the market?
The prevailing thinking is that volume is down because there is more risk. Until recently, volatility has been very high. How to account for high volatility and relatively low volume? "Trump's twitter handle can move the Dow 200-plus points in a matter of seconds," Dennis Dick at Bright Trading told CNBC.
That means market makers have to widen their spreads in order to compensate for the increased risk. Wider spreads, Dick said, means less liquidity, which means higher volatility. That volatility will drop when there is less uncertainty.
Another factor: Traders deleveraged when volatility hit the roof in February. Lower leverage generally translates into less trading.
Longer-term, there may be several big trends that are suppressing trading in general.
The shift to passive investing and ETFs has reduced the number and frequency of traders buying and selling individual stocks. This is harder to quantify, but it is widely believed on Wall Street. "So folks just aren't making individual decisions as much and advisors are more making longer-term sector and strategic investments than saying let's make a play for this one name or the others' earnings," Tabb Group's Larry Tabb told CNBC.
Also, companies don't split their stocks anymore. This sounds like a silly reason for a decline in volume, but it is likely a factor. "It used to be rare to see a stock over $200, now we have a bunch," said Jeff Benton of Fairfield Fund.
Benton points to Amazon as an example. It has average daily volume of 6 million shares. "If it had been splitting regularly so it was a $70 stock rather than a $1,400 stock it would be trading 120 million shares a day to trade the same dollars," he said. That's a huge difference: 6 million shares versus 120 million.
Finally, another school holds that traders are looking at this the wrong way. The important measure is not the total amount of stock traded, it's the dollar volume, and by that level we are doing fine. One trader noted that average daily dollar volume was $270 billion a day last year and has averaged $380 billion this year because prices are higher.
This also makes some sense. Traders don't have unlimited dollars — you can only buy so many shares. When you get stocks at high prices, you can't buy as much.
Wall Street may be unhappy with lower volumes, but the dollar volume being traded indicates that no one is walking away.