Traders and market manipulators successfully drag down the market when some investors begin to worry about the outlook and realize the gain from previous purchase. European sovereign debt looms to raise market fear. Although investors would not sell in a panic again as in last year, there is growing concern of a sizable pullback. A rush to take profit has started among some investors.
Market is currently a struggle between speculators and investors. Traders use economic crisis to create turbulence in the market to make profit. On the other hand, investors are holding large amount of cash and bought up stocks near the bottom. There is fear to reduce portfolio stock holding while there is still profit. The European sovereign debt crisis can be used as a trigger for market collapse. Currently there is no symptom of big drop although market participants are gradually losing confidence. Probability of panic selling is not high because active market participants have high cash level and do not have much incentive to sell. Market now appears to be finding support for weak investor confidence. Market movement is indication of market participants behaviour, not necessarily indicates contemporary economic environment while household investors mostly remain outside of equity stock market.
Stock Trading Is Still Falling After ’08 Crisis
Even though American stocks have doubled in price in the last three years, investors and traders large and small keep giving the market the cold shoulder.
Trading in the United States stock market has not only failed to recover since the 2008 financial crisis, it has continued to fall. In April, the average daily trades in American stocks on all exchanges stood at nearly half of its peak in 2008: 6.5 billion compared with 12.1 billion, according to Credit Suisse Trading Strategy.
The decline stands in marked contrast to past economic recoveries, when Americans regained their taste for stock trading within two years of economic shocks in 1987 and 2001.
The decline in trading has not sent the prices of stocks down. Though there is less buying and selling, the people who have remained in the market are willing to pay higher prices, driving the value of the benchmark Standard & Poor’s 500-stock index up 102 percent since the market hit a bottom in the spring of 2009.
Among retail investors, the most reliable source of trading volume has been the day traders who were given access to cheaper trading by discount brokers like E*Trade and TD Ameritrade.
Steve Quirk, a senior vice president at TD Ameritrade, said these investors were still scarred by the financial crisis in 2008-9, which followed the bursting of the Internet bubble in 2001. More recently, share prices have steadily risen but with jarring short-term reversals.
Stocks Up or Stocks Down, Retail Investors Stick to the Sidelines
It's been more than three years since the market bottomed, yet individual investors remain extremely wary of the stock market and clearly there's a lot of good reasons why:
•The 2008 credit crisis and 2000 bursting of the tech bubble scarred a generation of investors, some irreparably.
•The "Flash Crash" of May 2010 spooked many investors who feel the market is rigged, or at least manipulated by high-frequency computer trading.
•High unemployment, stagnant wages and the bursting of the housing bubble have left millions of Americans with little or no funds to put in the market, even if they were so inclined. In 2011, 46.4% of U.S. households owned stocks, down from 59.4% in 2001, according to USA Today.
•Government bailouts of Wall Street and the Fed's ongoing zero interest rate policy have eroded investors' faith in the market and the sustainability of any rally.
•Lack of faith in policymakers here and abroad, especially Europe, has many investors braced for another market meltdown.
Add it up and many investors would prefer to keep their assets in cash or the presumed safety of the bond market. Since the end of 2008, more than $260 billion have been pulled from U.S. equity mutual funds while $800 billion have gone into bond funds, USA Today reports, citing data from the Investment Company Institute.
Gauging when psychology will turn or what will trigger renewed ardor for stocks is impossible to predict. But statistical and anecdotal evidence suggests investor sentiment can't get a whole lot worse, which is historically a good time for true long-term investment.
Where Manufacturing Is Gaining
After hemorrhaging jobs during the recession - and over the last decade, for that matter - manufacturing has been one of the few bright spots of the recovery, restoring 489,000 jobs since the beginning of 2010.
But there have been some significant geographic distinctions in that recovery, as well as some toppled assumptions, one of which is that factory jobs have steadily shifted from the Midwest to the South.
Mr. Wial said that there was some evidence that manufacturing could make more of a comeback in the United States because labor costs are rising in developing countries and "many large companies are starting to reconsider the costs and benefits of offshoring."
Hedge Funds Profit as J.P. Morgan Sees Losses
For a group of hedge funds and other traders, J.P. Morgan Chase & Co.’s sudden $2.3 billion trading loss means big profits, according to people familiar with the matter.
Firms such as BlueMountain Capital Management LLC and BlueCrest Capital Management LP each scored gains of about $30 million, according to people familiar with the matter. Representatives for the firms declined to comment.
One trader elsewhere estimated that well more than a dozen firms, including his, as well as traders at banks also profited by taking the other side of J.P. Morgan’s trades.
The moves show that on Wall Street, traders are inevitably at the ready to take the other side of a big position in the expectation it goes awry.
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