The Relentless Bid’s impact on volume and volatility

Earlier this year, I explained why the market has been behaving as it has in my Relentless Bid post. The gist of it was that Wall Street firms are more fee-driven than transactional commission-driven than ever, and this change in incentives is altering the behavior of market participants which is manifesting itself in the market’s general manner of being.

The post exploded, hundreds of thousands of people have read it by now. The responses poured in like you would not believe.

Today’s Wall Street Journal chronicles the symptoms of The Relentless Bid’s dominance over the stock market…

Trading volume on the major U.S. exchanges last month tumbled to its lowest level for May since the financial crisis. A daily average of 5.7 billion shares changed hands, the least for the month since 2007, according to Credit Suisse Trading Strategy.

The decline comes despite six record closes last month on the S&P 500, extending a trading slowdown that started after the financial crisis. Daily average U.S. stock-trading volume last year was down 37% from the peak hit in 2009, Credit Suisse data show.

This year, the Dow Jones Industrial Average has made just one daily move of 2% or more. The Dow made moves of 2% or more 10 times by this time of year in 2010 and 33 times in 2009 in the same period.

What then hell is going on?

It’s very simple – the wirehouse firms, which control 50% of all invested household wealth in America, have successfully pushed the majority of their advisors’ practices toward more hands-off investing approaches. At the same time, do-it-yourselfers have made Vanguard, State Street and BlackRock’s iShares three of the world’s largest asset managers – and they are primarily purveyors of passive indexing products.

No one is picking stocks, no one is doing much trading. That kind of activity has largely moved itself to the options markets, if anything. 

Most of the daily activity you see is the creation-redemption process taking place as money is allocated toward ETFs from people who aren’t even paying attention anymore. Hence, the Relentless Bid.

Source:

Wall Street Adjusts to the New Trading Normal (WSJ)

 Read Also:

The Relentless Bid (TRB)