In recent weeks, much has been made of how boring it’s been for traders on Wall Street.
And everyone wants to talk about the collapse of the VIX, or volatility index.
Low volatility “discourages hedging and delays opportunistic investing,” said Goldman Sachs’ Gary Cohn in a recent presentation. This means less activity for trading desks.
We’ve put together the following charts that show how and why things are so slow.
Low Volatility And Low Volume
The VIX, which indicates how much traders expect the market to move in the short term, has fallen along with the average daily trading volume. Both volatility and volume are drastically lower than they have been in recent years. And as you see, volatility and volume undulate in tandem.
There Are Fewer Stocks To Trade
As the stock market has rallied to record highs since the financial crisis, the number of companies listed in the public market has cratered, as this chart from Goldman Sachs shows:
There Are Fewer People Trading
This table from Goldman shows how the bond and foreign-exchange markets, which are both nominally larger than the stock market, have seen volumes and volatility fall significantly.
And last month U.S. Treasurys traded in their tightest range in basically a generation:
And this chart of the CBOE Volatility Index for 10-year U.S. Treasurys shows how volatility in these notes has dried up in the last year.
This chart from Goldman show how trading in the euro versus the U.S. dollar has consolidated in the last few months.
This chart of the CBOE Euro Volatility Index shows how volatility in that currency has tumbled since the peak of the 2011 eurozone crisis.
As Wall Street banks look to find other ways to make money in the absence of trading, they have turned to investment-banking services like advising on mergers and acquisitions or underwriting debt offerings, as seen in this table from Goldman.
Volatility Is REALLY Low
The VIX is a gauge of how much the market is expected to move over the next month.
A lower reading means smaller expected market moves.
The VIX has been talked about so much recently because it is at historically low levels. This chart from Goldman shows how far below historical averages the VIX has been.
What The Stock Market Looks Like Now
The stock market looks vastly different today than it did before the financial crisis.
There are fewer participants, and there is less trading.
This chart shows the number of shares traded per month on the NYSE in the last 10 years.
This chart shows how many trades were executed each month on the NYSE.
And here we see how many shares have been traded per month on the Nasdaq in the last decade.
And how many trades have been executed each month on the Nasdaq.
When you look at the last year of trading in the major U.S. stock indexes — the Dow, the S&P 500, and the Nasdaq — you can see how much trading ranges have consolidated in the last few months.
Here’s a chart of the last year of trading in the Dow.
Note how tight the trading range has been since its February lows.
Same with the S&P 500.
And the Nasdaq.
Remember The Vix
This chart from RBC Capital shows the last 20 years of trading in the VIX.
The two red circles indicate the lowest ever readings for the index, and you can see how close we are to those levels.
Through the summer, this is the chart to watch.
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