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Trader William McInerney, center, works on the floor of the New York Stock Exchange. (Richard Drew/AP)
Trader William McInerney, center, works on the floor of the New York Stock Exchange. (Richard Drew/AP)

Low volume? No problem Add to ...

When skeptics of this bull market tell you what’s wrong with stocks these days, they often point to weak trading volume. Low volume, they argue, suggests that investors don’t have much faith in stocks right now. And with a lack of conviction, the stock market gains this summer could easily reverse.

The numbers backing up this claim of low trading volume are definitely compelling. In July, just 12.1 billion shares for companies in the S&P 500 traded hands. That is less than half the number of shares that traded in July 2011 and close to 60 per cent below the trading volume in July 2007.

The average over the past five months has been 13.2 billion shares, 28 per cent below 2011 and 42 per cent below 2010.

In other words, volume isn’t down just a bit; it has shrivelled to absurdly low levels. And when you combine this bull-market hurdle with a slowing global economy and sluggish profit growth, you can see where the skeptics are coming from.

Bespoke Investment Group noted that the low-volume argument is good in theory. But they counter with an equally amazing number that will make you think twice about whether low volume is really a good reason to stay out of stocks.

Bespoke went back to the start of the bull market in 2009 and looked at the S&P 500’s performance since then (actually, using the popular exchange traded fund, the SPDR S&P 500, as a proxy for the benchmark index). They then stripped out the days in which trading volume was below its 50-day moving average.

The result? Including low-volume days, the S&P 500 ETF has risen 108.5 per cent during the bull market since 2009. Without the low-volume days, the ETF has fallen 30.1 per cent.

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