Some 'irrational exhuberance' appears to be leading the stock market up a garden path, despite a flurry of bad news. Consumer sentiment - the index rose 12 points to 39.2 in April - is a powerful thing, and perhaps the long-awaited Spring weather is helping to fuel the optimism.
But I can't help but wonder what impact low volumes are having on this bullish trend. NYSE Euronext revenues fell 55% last quarter, largely due to sharply lower trading volumes. Nasdaq is offering rebates, BATS is paying liquidity takers - anything to grab some of the all-important trading volume. Retail investors have yet to come back into the market, and there is the distinct possibility that when they do it won't be to the extent that they did before the crash. When you have less money to spend, you don't usually spend it on stocks and shares. This leaves hedge funds, investment banks and proprietary trading firms doing the lion's share of business. And as more quant traders enter the market, newer and more sophisticated algorithms come along. Smaller spreads, higher frequency trading and lower overall volumes - sounds like volatility will remain high.
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