Last week markets shed a bit of weight, but, a closer look is needed. Investor patience actually led to the loss experienced.
The Good News
With all three major averages shedding weight, S&P 500 down 8.70, NASDAQ down 25.47, and the Dow Jones Ind Average off 119.17 points you would think there was a lot of bad news last week¹. It was actually quite the contrary. Home prices grew at a faster pace last month, new home sales fell, but the pending home sales increased. CB consumer confidence fell; however, the more reliable University of Michigan Consumer sentiment index grew. Lastly, Core durable goods orders, which represent long lasting manufactured goods stripping out transportation, grew last month.
Now that you are asleep, why did the markets lose weight if the data wasn’t that bad last week? Trade. I would like to say this article is not about trade, again, but that would be a lie.
The Reality
President Trump and President Xi Jinping were to meet at the G-20 summit on Saturday. Traders were still active, with average volumes at 3.74B shares per day traded. The one-year average volume has been 3.45B shares a day². So actually, traders were more active last week. Their trades appear to have been sideways movement on the over all market. Heavier volume actually allowed for a more sideways market environment, as opposed to a down right fall in valuation as investors awaited the results of the G-20 summit.
Conclusion
Lower volume in trading means there are less people on either side of a given trade which makes price swings more likely. Volatility did rise to 16 last week, up from 14.7 the prior week. However, had market participants sat on the sidelines, a thinly traded market would have resulted in heavier losses.
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment. Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.