Did you know that August is historically one of the slowest months for stock trading due to low trading volumes?

This lack of activity can lead to exaggerated market movements, making it a challenging time for investors to navigate.

In this edition of our newsletter, we’ll be looking at these topics:

• The Stock Market Is In Summer Mode – Low Trading Volumes Could Lead To More Pain: First, we’ll discover how the summer lull in trading volumes can amplify market volatility 😖

• The Weather Contributed To The Stock Market Route: Next, we’ll explore the surprising role that weather patterns and weak job reports have played in recent stock market declines ⛈️

• The Productivity Boom Continues: Finally, we’ll learn how technological advancements are driving productivity growth 📈

Stay informed with these insights to better understand the stock market during these volatile times. Have a great weekend!

The Stock Market Is In Summer Mode – Low Trading Volumes Could Lead To More Pain 😖

The Japanese yen, some earnings disappointments, concerns about high P/E multiples, recession worries—all played a part in Monday’s meltdown.

But something that isn’t being talked about enough as a co-conspirator: low trading volume.

History suggests the number of shares changing hands could exacerbate the market’s ups and downs—for weeks to come.

The violent market moves of recent days are being massively exaggerated by illiquid August conditions.

August is typically the slowest month of the year for trading, with about 9.3 billion shares changing hands across major U.S. exchanges a day, according to Dow Jones Market Data.

That’s nearly 30% fewer than the 13.2 billion in the peak month of March 📉

Wall Street is famous for clearing out in August as workers in the Northeastern U.S. head to the beach.

Fewer executives manning trading desks cuts down on the number of buyers and sellers in the market.

That, in turn, means lower liquidity.

On days like Monday, when droves of would-be sellers rush to unload shares, the scarcity of buyers quickly leads to lower prices, with momentum that can feed on itself.

For a close-up view, take a look at the SPDR S&P 500 Trust, the market’s largest exchange-traded fund by assets.

Over the past three years, the ETF has traded an average of about 81 million shares a day, according to FactSet data.

Its daily average volume for July fell to just 47 million shares prior to Monday, when a surge of nervous investors sent trading volume suddenly soaring to 146 million shares 📈

That was the fund’s biggest volume trading day since early 2023.

Although in the long term, daily volumes of 150 million shares or more for the ETF aren’t unheard of in volatile markets.

There were more than a dozen such days in 2022.

Historically, stock trading volumes tick up only slightly in September and October.

The market’s average daily trading volume typically doesn’t eclipse 10 billion shares a day until November, according to Dow Jones Market Data.

The Weather Contributed To The Stock Market Route ⛈️

Stocks slid in New York and crashed in Tokyo after a weak U.S. jobs report stoked recession fears, you might have heard.

Employers added just 114,000 jobs in July, far short of a predicted 175,000.

The report from the Bureau of Labor Statistics (BLS) stated that Hurricane Beryl had “no discernible effect” on the data.

After all, the same report showed that in July, 1.54 million workers weren’t working or working only part-time due to weather, up from 280,000 in June, one of the highest monthly readings in years 📈

And Texas, where Hurricane Beryl hit, seemed to produce more than its share of layoffs.

Using a more reliable three-month average, employers probably added around 170,000 jobs in July.

The labor market looks like it did prior to the pandemic.

The labor market may not be weakening, it’s more likely normalizing.

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The Productivity Boom Continues 📈

Economic data indicates that productivity, or output per unit of labor, is growing nicely, thanks to technology investments.

That probably means we remain in a bull market.

It doesn’t mean that we couldn’t have a short correction, but to the extent that you came into this selloff fully invested, it’s too late to panic 🤷

There is likely to be more volatility, but the worst of the storm may be over.

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