A bad year for American equity trading is getting worse.
Shares changing hands on all U.S. exchanges fell 16 percent to 5.23 billion yesterday from March 9, while Standard & Poor’s 500 Index composite volume slipped 17 percent to 2.17 billion shares, data compiled by Bloomberg show. Those are the lowest daily levels of 2012 and the smallest totals excluding holiday weeks since Bloomberg began tracking the data in 2008.
A rally that has restored more than $3.2 trillion into U.S. equities has failed to lure investors following one of the most volatile years on record. While the S&P 500 has had its best annual start since 1998, individuals are shunning equities after they were burned in 2011 by Europe’s debt crisis, said Mark Turner, head of U.S. sales trading at Instinet Inc. in New York.
“I don’t think investors are completely convinced,” Turner said in a telephone interview. Volume “was extremely light volume because it was quiet in Europe over the weekend and there was no major headlines coming out of Europe,” he said. “Money has been shifting to bonds out of equities for some time now. There’s a host of different reasons. Take your pick.”
Nasdaq composite trading volume slipped 15 percent to 1.34 billion shares, the lowest excluding holidays since Aug. 27, 2007, when it was 1.34 billion shares, data compiled by Bloomberg show. Volume of shares for securities traded on the New York Stock Exchange declined 10 percent to about 644 million shares, the lowest since Feb. 24, Bloomberg data show.
About $174 billion worth of shares traded yesterday on all U.S. exchanges, the lowest this year, according to data compiled by Bloomberg. On the NYSE, about $21 billion changed hands, the least since Feb. 24.
The S&P 500 rose less than 0.1 percent to 1,371.09 yesterday, while the Dow Jones Industrial Average climbed 0.3 percent to 12,959.71. Equities swung between gains and losses as China reported the biggest trade deficit in at least 22 years, the weakest January-February factory-production gain since 2009 and retail sales were below the median economist estimate.
Investors also waited as euro-area finance ministers gathered in Brussels to sign off on the 130 billion-euro ($170 billion) second package for Greece as they focus on Spain’s budget-cutting efforts and Portugal’s aid program.
The average number of shares trading hands on U.S. exchanges during the past 50 days fell to 6.7 billion from 9.6 billion on Oct. 7, data compiled by Bloomberg show. For the S&P 500 composite volume, the figure fell to 2.8 billion shares yesterday from 4 billion five months ago, according to the data.
Trading volume has been declining since October as customers of U.S. stock mutual funds withdrew more than $68 billion through January even as the S&P 500’s valuation has recovered by 14 percent. That compares with the $68 billion that has entered into bond funds in the same period. Since the beginning of February, about $2.5 billion has gone into equity funds and almost $30 billion into bond funds, according to estimated figures by Investment Company Institute.
“There’s still a lot of money sitting under mattresses, and a lot of money on the fixed-income side,” Larry Tabb, chief executive officer of research firm Tabb Group LLC in New York, said in a telephone interview. “Even though the economy is starting to pick up, individuals don’t have a lot of disposable income to invest.”
Trading by individuals has been slowing since the 2008 financial crisis. Daily average volume slipped 9 percent last quarter compared with a year ago, according to data from E*Trade Financial Corp., TD Ameritrade Holding Corp. and Charles Schwab Corp. At E*Trade, daily trading volume is 35 percent below its level at the end of 2008. Revenue-generating trades are down 14 percent in the same period at Schwab.
Investors remain skittish after the S&P 500 ended unchanged in 2011 after S&P stripped the U.S. of its AAA credit rating, President Barack Obama and Congress struggled over deficit cuts and Europe was forced to bail out Greece. The index moved 1.3 percent a day since between April and the end of December, compared with a 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc.
Some of the equity markets’ biggest participants are scaling back. High-frequency trading has accounted for 53 percent of volume in 2012, down from 55 percent last year, according to Tabb Group. The firms made up 61 percent of all trading in 2009 and 26 percent in 2006, according to Tabb.
High-frequency trading relies on the rapid and automated placement of orders, many of which are immediately updated or canceled, as part of strategies such as market making and statistical arbitrage and tactics based on momentum.
As trading shrinks, a larger proportion is taking place in private venues designed for institutional investors. Dark pools, or venues that don’t publish bids and offers and are used by fund managers and brokers trying to limit the impact of their trades on prices, matched 935 million shares a day in January, or 13.5 percent of stock changing hands, compared with 1.02 billion, or 12.4 percent, a year earlier, according to data compiled by Rosenblatt Securities Inc. That topped the prior market-share record of 13.2 percent in April.
“Headed into this year, things actually looked pretty good,” Tabb said. “You saw unemployment numbers coming down, the economy generally moving upward and fewer issues around Europe. You would think that would start bringing volume back into the market, but it continues to drift down.”