Even though the stock market has been on a bull run for the past four years, share trading volumes are sharply down. Experts say investors are moving to other asset classes, baby boomers are choosing bonds, and that regulation has restricted trading activity by banks.
By Karan Kumar — Exclusive to Resource Investing Newslowest since a sub-six-billion volume in December 2007, according to Credit Suisse. Many are asking how the market can be on a bull run with volumes at such a low level.
“There is what I believe a simple explanation for the low volumes in two words: baby boomers,” Stanley Bic, a trader in Frankfurt, told Resource Investing News in an interview. “Too many analysts discount the demographic shift that’s taking place with baby boomers hitting old age. Boomers were badly burned by the market in 2008, and why would a sane man near retirement or already retired risk having his accumulated wealth go up in smoke at this stage of the game. That’s one of the reasons why many poured their dollars into bonds and bond funds. Boomers control somewhere around three quarters of the personal financial assets in the US, and many have simply left the market and will not return.”
Bic added, “many doomsayers and perma-bears will point to a lack of trading volumes as proof that we are not in a so-called bull market. Such talk usually reeks of sour grapes to me, especially considering the S&P 500 has more than doubled since hitting 666 in March of 2009. Do low trading volumes mean that we can’t be in a bull market? Not at all. Now the question is, could we have a sustained bull market without the boomers? Yes.”
The Credit Suisse report on volumes, quoted extensively by the media, showed that in the volatile and frightening markets of 2008, volumes were twice the level seen in March – a time when all pundits and data point toward more signs of economic recovery.
“There’s no way to sugar-coat it: Volumes are down and trending lower,” Credit Suisse’s Ana Avramovic wrote in a note to clients. “A growing preference for other asset classes may be drawing money away from equities.”
Other experts say volumes are down because investors do not trust the market anymore, because there is no fresh money going into the market, or due to the fact that financial regulation has restricted trading activity by banks.
“There is no fresh money going into the markets,” Doug Kass of Seabreeze Partners Management told CNBC. “Why should we be surprised the retail investor is not there? We’ve had two huge drawdowns in stocks since 2000, a flash crash two years ago and real incomes are stagnating.”
Bic cautioned that instead of trying to find culprits to blame for low trading volumes, investors should not lose sight of “what is performing well, and play with ideas about why certain companies and sectors will outperform. Everybody develops their own way of viewing the market and making profitable trades. On one hand it’s not complicated at all and yet at the same time it’s the most complicated game that’s ever been played because it contains everything both known and unknown.”
Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.