Trading volume on the S&P 500 has dropped 60% since 2009!

 

 

In the table that I have created for you below, I list the trading volume for the S&P 500 for each June since 2009 and the percentage change in volume from the previous June.

Trading volume on the S&P 500 has dropped 60% since 2009!
Trading Volume, S&P 500, June of Each Year, 2009 – 2014

Year	Volume (Shares Traded Per Month)	Year-Over-Year % Change
June 2009	93,147,496,448
June 2010	91,971,043,328	-1.3%
June 2011	63,674,499,072	-30.8%
June 2012	59,703,365,632	-6.2%
June 2013	51,560,980,480	-13.6%
June 2014	38,765,629,440	-24.8%

Data source: www.StockCharts.com, last accessed July 1, 2014

What’s happening here? How can the stock market rise year after year if trading volume is down?

It’s very simple, but I’ll explain this new phenomenon in a moment. First, look at the chart of the S&P 500 below. Pay close attention to the volume at the bottom of the chart. As volume on the S&P 500 collapsed, the price of the index rose.

Volume is collapsing because the number of shares companies have outstanding is being reduced at an accelerated rate. For example, in the first quarter of 2014, S&P 500 companies purchased $154.5 billion worth of their shares back (stock buyback programs). Over the trailing 12 months, S&P 500 companies purchased more than half-a-trillion-dollars worth of their own shares—$535.2 billion to be exact. (Source: FactSet, June 18, 2014.)

Add to the shrinking number of shares outstanding the fact that central banks have also been buying equities (see “Guess Who Is Pushing the Stock Market Higher Now”), and the number of shares to buy (supply) has really been sucked up.

For more assistance please visit TGA Capital Management and I can be emailed at mgreen1@greenadvisory.com
 

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