Volume Fades as Investors Mull Outlook

Sun Aug 1, 2004
By Nick Olivari

NEW YORK (Reuters) - Where has all the volume gone?

The number of shares traded on the New York Stock Exchange fell below its 90-day average on 41 of the 60 trading days since the start of May, when the Standard & Poor's 500 last began to rally.

The Nasdaq's volume slipped below average on 48 days over the same period, according to Reuters analytics.

The reasons?

Uncertainty, a lack of direction, and the usual summer slump as people take vacations.

"It's the normal summer doldrums combined with the market having a lack of direction," said Bob O'Brien, head of equity trading at Boston-based Evergreen Investments, which oversees $248 billion. "There is no conviction."

Most stock investors are wary of buying or selling big blocks of equities, analysts say, when so many things are up in the air -- such as the outcome of the U.S. presidential election, the size and frequency of future increases in U.S. interest rates, and the potential economic fallout from oil prices above $40 a barrel.

Added to the overhang of uncertainty are fears of attacks on the United States and concerns that profit growth will slow with the U.S. economy as oil prices continue to rise.

Consequently, the major U.S. stock market indexes have been stuck in a narrow trading range without direction lately and volume has dried up. "People are sitting back, waiting to see what is going to happen," said Andy Valerie, equity strategist at Boston-based LPL Financial Services. "The lack of participation is everybody digesting things."


Earnings growth comparisons are becoming more difficult, which also makes investors more than a little hesitant about buying stocks, traders and analysts said.

Year-over-year growth in quarterly earnings will be 20 percent-plus for four consecutive quarters, if the current trend this quarter holds up, according to Thomson First Call. This is only the fifth time since 1950 that has occurred.

Though the S&P 500 rallied off its May low, it failed to take out its 2004 high of 1,157.76, and on Monday, it closed at 1,084.07. its lowest point since December.

Though stocks had a rally Tuesday, the bulls failed to follow through the day after. The S&P 500 was down 0.9 percent at 1,085.01 in Wednesday afternoon trading.

And while the 90-day average daily trading on both the NYSE -- about 1.42 billion shares -- and the Nasdaq -- about 1.73 billion shares -- is on par with the same time a year ago, investors aren't expected to rush back into the market any time soon.

All of which begs the question: What will it take to get investors back into the market?

"There has to be a catalyst of some sort -- either a global event or the election results become clearer" before investors feel comfortable with loading up on stocks again, Evergreen's O'Brien said.








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