This week was the quietest week for U.S. stocks so far in 2021, and Wall Street is wondering what will break that calm.
As the S&P 500 rose to a new all-time high, stock trading volume plunged, with the five-day average volume on U.S. exchanges falling to 9.5 billion shares, the lowest since last October, Bloomberg data showed. Friday’s trading was particularly quiet, with only 8.7 billion shares changing hands, the lowest daily volume since last Christmas Eve.
In the past 13 months, U.S. stocks have experienced a plunge and then the most intense rally in nearly a century. This calm today seems extraordinarily sudden.
In the U.S., where the epidemic remains severe, the approval of the vaccine last November sparked more optimism in the market and a style switch in U.S. stocks appears to have begun. Since then, more than $575 billion has flowed into the market, more than the total inflows of the past 12 years, according to Bank of America.
Everything changed in April, when U.S. stocks ushered in a period of calm.
Some analysts believe that the reason why U.S. stocks are very calm is closely related to several factors: the market mania for retail stocks has cooled as economic restrictions have been eased; a brief sell-off in the bond market triggered higher yields after a round of statements by Federal Reserve officials; in addition, economic data began to corroborate reasonable valuations.
However, the market believes that this calm will not last.
Arthur Hogan, chief market strategist at National Securities, said
We were traveling at 100 miles per hour before, and now we’re back within the speed limit.
We will see a resurgence in trading volume and volatility as we witness dramatic changes in economic growth, income growth, inflation this year, in addition to noting the Fed’s brand new framework.
After the calm, what awaits U.S. stocks?
Wall Street believes that the momentum that continues to drive U.S. stocks upward may have run out. On Friday, the S&P 500 closed at an all-time high of 4128.8, above the year-end average target of 4099 for strategists tracked by Bloomberg.
Skeptics have cited caution in investing in U.S. stocks for no other reason than rising U.S. bond yields, overvaluation of U.S. stocks and potential tax hikes.
Tobias Levkovich, chief U.S. equity strategist at Citigroup, expects the Federal Reserve to begin easing monetary stimulus later this year, while earnings guidance will weaken, adversely affecting stocks and increasing volatility, with a 2021 S&P 500 target of 3,800.
Kim Forrest of Bokeh Capital Partners is feeling more optimistic. She expects the best earnings season since 2018 to kick off, which will bring the stock market back to life.
Data compiled by Bloomberg Information shows that profits at S&P 500 component companies likely rose 24 percent in the first quarter, led by automakers, banks and retailers.
Forrest believes.
Unless something extraordinary like the epidemic happens again, we are entering the surplus season, and last year’s base is very low, I think the first quarter U.S. stock earnings will be very good, but also enough to encourage investor confidence.
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