Jan. 23 (Bloomberg) -- Trading in U.S. stocks fell to the lowest level since at least 2008 amid mutual fund withdrawals and Wall Street job cuts.
An average of 6.69 billion shares changed hands on U.S. exchanges in the 50 days ended Jan. 18, the fewest on record in Bloomberg data starting three years ago that excludes over-the- counter venues. On the New York Stock Exchange, volume has tumbled to the lowest level since 1999, the data show.
The slowdown in trading shows that investors remain skittish after five years of withdrawals from mutual funds that buy U.S. equities and one of the most volatile years on record for the Standard & Poor’s 500 Index. While the benchmark index is having its best January rally since 1997, securities firms around the world cut more than 200,000 jobs last year.
“Investor confidence is shaky at the very least,” Mark Turner, head of U.S. sales trading at Instinet Inc. in New York, said in a telephone interview on Jan. 20. His firm handles about 4 percent of the total daily U.S. equity volume. “We need to see the U.S. economy improve. We need to see some sort of a plan in place to deal with Europe’s debt crisis before the market gains some confidence. At that point, we’ll start to see an increase in volume.”
Daily equity trading approached 12 billion shares in May 2009, near the start of a three-year bull market in which the S&P 500 has almost doubled. The total is based on the 50-day average volume on venues including those run by NYSE Euronext, Nasdaq OMX Group Inc., Bats Global Markets Inc. and Direct Edge Holdings LLC.
This month’s 4.6 percent rise in the S&P 500 has failed to offset the decline in volume. About 6.85 billion shares worth $209.6 billion have changed hands each day this year, down 16 percent and 12 percent, respectively, from the same period in 2011, Bloomberg data show. The S&P 500 rose to an almost six- month high of 1,315.38 last week.
The New York Stock Exchange has fared worst among the biggest venues. Trading on the Big Board slumped to the lowest level since 1999, with the 50-day average reaching 847.5 million shares last week, according to data compiled by Bloomberg. Based on value traded, the average stood at $25.1 billion, a level not seen since at least 2005.
On the Nasdaq Stock Market, the 50-day average dropped to 1.72 billion shares, the lowest in six years. Daily value of stock transactions has been $45.1 billion, the lowest since 2010, the data show.
Trading is declining faster on the biggest venues, which hosted almost all U.S. equity volume as recently as 2000, following the spread of alternative venues such as Jersey City, New Jersey-based Direct Edge and Bats in Lenexa, Kansas. Direct Edge and Bats now account for more than 20 percent of transactions.
More than 40 equity venues, including electronic communications networks such as Citigroup Inc.’s LavaFlow and so-called dark pools such as Goldman Sachs Group Inc.’s Sigma X, make up the American stock market today.
Individuals withdrew cash from mutual funds for a fifth year and money managers suffered losses in 2011 amid widening price swings. The S&P 500 moved 1.3 percent a day between April and December, compared with 50-year average of 0.6 percent before 2008.
They started pulling money in 2007, just as securities related to subprime mortgages started to plunge, causing $2 trillion in global bank writedowns and losses tied to subprime loans and spurring the worst bear market since the 1930s. Withdrawals continued as concern Greece would default pushed the Stoxx Europe 600 Index down 26 percent last year between Feb. 17 and Sept. 22.
“Investors are not willing to take a lot of risk, especially after a bad year in 2011,” Nikolaos Panigirtzoglou, a London-based analyst who studies fund flows at JPMorgan Chase & Co., said in an e-mail.
While the S&P 500 was virtually unchanged last year, 55 stocks lost more than 30 percent compared with a total of 13 in the prior two. The Dow Jones Industrial Average alternated between gains and losses of more than 400 points on four days for the first time ever in August. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, Bloomberg data show.
Equity mutual funds focused on large companies had their worst year since 1997, with only 17 percent beating the S&P 500 in 2011, data from Chicago-based Morningstar Inc. show.
Hedge funds, largely unregulated investment pools that aim to make money whether markets rise or fall, lost 4.9 percent last year, according to the Bloomberg aggregate hedge-fund index. Managers have cut leverage, or money borrowed for trading, to 2.54 times this month, suggesting reduced activities, according to a Jan. 17 note by Credit Suisse Group AG. Leverage peaked in 2011 at above 2.7 in April, the firm estimates.
Volume is decreasing even as data suggest the American economy is recovering. Sales of previously owned U.S. homes rose in December to the highest level since January 2011 and claims for U.S. jobless benefits fell to the lowest level in almost four years, reports showed last week. The economy is projected to grow 2.3 percent this year, according to the median forecasts from 72 economists surveyed by Bloomberg.
Decreasing volume threatens to curb the rally that has added more than $700 billion to U.S. share values this year, according to Brian Jacobsen of Wells Fargo Advantage Funds. The S&P 500 has jumped 20 percent from a 2011 low in October.
“Traders have rationally been sitting on their hands knowing there are some pretty big events coming up that could pull out the rug from underneath this rally,” Jacobsen, who helps oversee about $219 billion as chief portfolio strategist at Wells Fargo in Menomonee Falls, Wisconsin, said in a Jan. 20 telephone interview. “With the low volume, it doesn’t give me a lot of conviction.”
The slowdown has been worsened by cuts at banks that are under regulatory pressure to reduce costs and curb risky trading in the wake of Lehman Brothers Holdings Inc.’s 2008 bankruptcy, Jay Lefkowicz, a strategist at Concept Capital Markets LLC in New York, said in a Jan. 19 phone interview.
Morgan Stanley, owner of the world’s largest brokerage, said last month it plans to cut about 1,600 jobs. New York-based WJB Capital Group Inc., with 100 employees, is shutting its brokerage operation.
“You are taking players out of the game,” Lefkowicz said.
--With assistance from Ksenia Galouchko and David Wilson in New York. Editors: Chris Nagi, Nick Baker
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