Stock trading volume is at its highest in three years. Concerns about the global economy have set the market back a few percent. Portfolio managers typically buy and sell at the end of the year to take profits, rid themselves of losers and generally prepare for the New Year. Concerns about the global economy will drive a lot of these portfolio-adjustment trades. The Wall Street Journal online source, MoneyBeat, notes that stock trading is back, for now.
Halfway through this month the average number of stocks changing hands each day stands at its highest level for the month of November since 2011, according to data from Credit Suisse. On average, 6.6 billion shares have traded each day this month, an 11% increase from November last year. Volumes collapsed this summer to their lowest levels since the financial crisis, as investors bided their time before the Fed ended quantitative easing in October and any concerns about global growth were on the back burner.
But November’s increase in trading volume comes on the heels of an even busier October. Concerns about the global economy last month pushed the S&P 500 down by as much as 7.4%, and sent volatility, a key driver of volumes, soaring. Trading volumes surged 25% to 7.8 billion shares a day. Volumes typically rise in the fourth quarter, as portfolio managers fine tune their positions before closing their books for the year.
For stock traders, increased trading volume, coupled with concerns about the market are potential factors for profit. The VIX fear index is up to 26.25 compared to a low of 10.32 in July. The world has been making its way, bit by bit, out of the recession. First Asian markets took the lead and then North America. Now there are signs of economic slowdown and risk of outright recession in Japan, China and Europe. US manufacturing is off for the first time in months. The bright light in the USA is the low price of energy but the glut of lower priced gas and oil has send oil stock downward. Concerns about the global economy simply increase the likelihood that gas and oil prices will stay low for some time to come.
After more than two decades fighting deflation things were starting to look so good in Japan. The government had succeeded in devaluing the Yen and increasing exports. Then they decided to institute a consumption tax. Japan is back in recession for the fourth time in only six years. According to the Washington Post:
A sharp slowdown in Asia and stagnation in Europe are putting the global economy at risk of a prolonged slump, economists say, marked in places by sky-high unemployment, sluggish wage growth and some of the worst economic conditions in decades. As noted in the Washington Post a Japan recession on top of trouble in Europe is concerning both economists and investors. On Monday, Japan said it had entered its fourth recession in six years - this one despite aggressive efforts by Prime Minister Shinzo Abe to boost growth.
Investors might choose to look elsewhere as Japan’s economic problems worsen but stock traders may find profits from Japan’s on again off again brushes with economic growth between surges of economic activity.
Specifics: Airline Stocks
Traders may have concerns about the global economy but are more focused on stock price movement, up or down. Airline stocks provide an interesting mix of signals. 24/7 Wall Street asks if airline stocks have rallied too much now that fuel prices are down.
Falling oil prices over the past month have made a huge contribution to the major airliners’ stock prices. The impact of lower oil prices and the continued strong consumer demand almost certainly add support to the bottom line. The logic behind the massive gains in airline shares is that as oil costs shrink, airlines should see their margins increase and earnings grow from there. That being said, the runs have been so strong over the past month or so that one question has to be asked: Have these airline stocks all run up too much?
Low fuel prices are good for airlines but concerns about the global economy include the fact that a broader recession will decrease the number of people who want to fly. There are a lot of recent orders out there for jets for Asia. These orders could be canceled if the economy tanks.
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