A fractional change in participation

Stock market volatility increased in recent days despite a relatively quiet week of financial headlines. To compare market movements to an ocean freighter, it doesn’t take much of a cargo load-shift to one side to cause a scene.

We often hear in financial news coverage the daily price movements of an index, such as the S&P 500 or NASDAQ. These days, we’ve also heard quite a lot about the movements of a relatively few tech-stocks. Often overlooked in the headlines is the volume or number of shares that exchanged hands on a particular day. While high or low volume does not necessarily translate to rising or falling prices, it can lead to “shifting cargo.”

As you would expect, not all shares of a company exchange hands on a given day. Apple Inc. (AAPL), for example, now has around 17 billion shares outstanding. In fact, even on high volume days, only a small fraction of a company’s total shares outstanding are actually traded. What does this mean? The vast majority of shares are not traded on a daily basis. A fractional change in the number of participants buying or selling a stock can make a significant tilt. Scaling back from waves to ocean, we still expect the long term performance of a stock investment to be largely driven by the results of the business and the outlook for growth.

Market Comments

  • The stock market ended the week lower, led by the technology-heavy NASDAQ Index; the NASDAQ decline on Thursday was the largest one-day decline since June

  • Recent jobs data showed the unemployment rate declined to 8.4%, which was below the estimated rate of 10.2% (source: bls.gov)

    • Also on the positive side, average hourly earnings increased slightly as well as average workweek hours

  • COVID-19 vaccine optimism appeared to increase as the CDC prepares a vaccine distribution plan for November; still unknown is whether a vaccine would be available by then

  • The September 2nd Federal Reserve’s report on economic conditions stated that economic activity increased across most U.S. districts but that gains were modest

    • Strong vehicle sales and improvements in tourism and retail were positive contributors

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