A summer August is typically never that active on Wall Street. However, this month’s volume is on track to be extraordinary light, calling into question the legitimacy of the recent rise in stocks and threatening the profits of some market’s participants.
Average daily volume this month is 5.7 billion shares, the lowest monthly average since September 2007, according to a report from Sandler O’Neill & Partners. Three of the five days this year when volume was below $5 billion occurred during this month alone. The other two days preceded major holidays.
“It’s only likely to get worse in the next two weeks,” said Richard Repetto, the firm’s exchange and trading analyst, in the report. “Despite rising equity markets, investor confidence remains low.”
The S&P 500 touched a four-year high on Tuesday. That followed a rally that began in June on optimism the European financial crisis would be contained, and the Federal Reserve(explain this) would embark on more stimulus soon.
Despite the run at the new high this week, equities have basically stalled this month in a small trading range. And retail investors continue to shun stocks for bonds instead.
“This low volume rally should be sold and I expect a correction in the market to take place in the new few months,” said David Greenberg of Greenberg Capital. “What goes up on air tends to fall like a rock when the switch is flipped.”
