Equities share volume may be up for this year over 2008, but it plummeted in November thanks to wary investors.
Average daily volume (ADV) for the month up until Thanksgiving dropped more than 21 percent from the same period last year, and more than 10 percent from October volume figures. And for the period through Thanksgiving, ADV stood at 8.4 billion shares a day–the lowest figure since August 2008–according to analysts at Sandler O’Neill and Partners.
"There’s some trepidation in the market," said Sandler O’Neill’s Richard Repetto, an analyst who covers exchanges and the trading business.
Trading volumes for the year through October were on pace to better those of 2008, according to BATS Trading figures. This comes as a surprise to many in the industry who wondered in January how far share volume would fall after 2008’s blockbuster year. The outset of the financial crisis last year led to record volumes. When the market crashed, many believed that shell-shocked investors would remain on the sidelines.
And that has been the case for traditional investors, who last month continued to avoid domestic equity mutual funds. For November, long-onlys abandoned domestic funds to the tune of $4 billion a week, on average. That’s up a whopping 21 percent from the $3.3 billion in outflows, on average, in October. And the week ending Nov. 11 marked the 13th consecutive one of outflows, as reported by the Investment Company Institute.
"The large institutional investor is still leery about the equities markets," Repetto said.
By comparison, bond funds have not had a single week of outflows this year. They saw almost $9 billion in inflows for the week ending Nov. 11.
In addition, hedge funds largely sat on the sidelines last month–and have been throughout the entire fourth quarter. Indeed, they had locked in their profits for the year mostly by the end of the third quarter, according to two sources–one on the buyside and another on the sellside.
"You’ll have hedge funds looking to lock in gains," the broker said. "There are huge numbers of people who would be happy to do nothing after today, if they’ve made money."
Retail trading was down about 15 percent, November versus October, Sandler O’Neill data showed. One reason: The trading in the top five most heavily traded stocks for the month fell to 16 percent, from more than 32 percent in August.
The big announcements that caused Citigroup to trade a billion shares a day didn’t happen, Repetto said. Retail investors are usually active in the top-five stocks.
"The easy volume, really all that fluid volume, is pulling back a bit," Repetto said.
Finally, volatility, typically a catalyst for volume, remained low. As measured by the Chicago Board Options Exchange’s Volatility Index–or VIX–volatility averaged roughly 24.3 in November through Thanksgiving.
Volatility was relatively unchanged from October, and retreated from a burst on Oct. 30, when the VIX closed above 30. The markets are generally considered volatile when the VIX climbs north of 25.
