How the 'astonishing' decline in S&P 500 trading volume could pose serious risks for investors:
As the major equity benchmarks hover close to all-time highs, enthusiasm for the ongoing bull market appears to be mild, based on trading volume.
“The numbers are astonishing,” Tim Quast, president of market analytics firm ModernIR told MarketWatch. “One potential risk is that there will be a lack of buyers during times of stress and that the absence of liquidity will lead to fire sales.” “Banks no longer provide the same liquidity as [before the Great Financial Crisis]. The result is a bid-ask spread for the average S&P 500 stock that is close to a multi-year high,” she wrote. The bid-ask spread is the difference between the prices quoted for an immediate purchase and the immediate sale of an asset.
Other market observers say that looking just at volumes for individual stocks no longer presents a full picture of the S&P 500 universe, which is increasingly comprised of derivatives like exchange-traded funds, futures and options.
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