Courtesy of Daniel Sckolnik, Sabrient Systems and Gradient Analytics
“Only two things are infinite, the universe and human stupidity, and I’m not sure about the former. “ — Albert Einstein
In spite of the rather nice ride the stock market has had these last six weeks, it might be a mistake to assume it will last once September rolls around, when a series of domestic and macroeconomic factors come into play.
Still, while investors are probably wise to remain skeptical as to the ongoing robustness of the current, low-volume rally, there may be a big reason why Wall Street can continue to show gains well past Labor Day.
The Dow Jones Industrial Average (DJIA) has made an impressive 4% gain over the course of the last six weeks, though it is an important caveat to note that it has risen on anemic trading volume, well below last year’s summer levels. While it is common for trading levels to fall this time of year, with many of Wall Street’s major players kicking back in their summer homes and rejuvenating getaways, this year seems pretty extreme, with average trading volume falling off a staggering 40% compared to August 2011.
It seems as if there are relatively few sellers, amplifying the impact of the buyers. It might be due to investors standing pat until a clear direction can be ascertained, or to the relatively low-risk attraction of cash that seems in effect. In any event, all that can be expected to change when the summer officially ends following the Labor Day holiday, when volume historically returns to higher average levels, and with the renewed action, a likely rise in volatility levels.
What will be the most likely market movers come September?
Expect the market to react sharply to Ben Bernanke’s next pronouncements due at the upcoming September Fed meeting. There are a lot of investors who are anticipating that the Fed will take some action to help lower the stubbornly high rate of unemployment, particularly as inflation seems to be staying at sub-2% levels and GDP is expected to stay in slow-growth territory.
Of equal importance may be the next round of decisions, or indecision as the case may be, that will come from the Eurozone leadership. The European Central Bank (ECB) may use its September 6th meeting to provide actual details of how it plans to do,…
