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January 25, 2015

Odd and Fishy: Dow Jones Index Trading Volume Collapses, But Prices Rise

By Michael Lombardi, MBA Profit Confidential

One of the fundamentals of economics is that rising demand for an item pushes prices higher, while declining demand results in lower prices. It’s common sense: the more people want something, the higher the price; the less people want something, the lower the price.


That is what has me very suspicious about the stock market. Since 2009, stock trading volume has all but dried up, yet stock prices have gone up instead of down on the softer demand for equities.

The chart below shows the trading volume on the Dow Jones Industrial Average since 2009.

Trading Volume, Dow Jones Industrial Average
YearVolumeChange YOY
2009316.91 billion34.23%
2010212.68 billion-32.89%
2011209.49 billion-1.50%
2012168.33 billion-19.64%
2013129.74 billion-22.92%
201487.39 billion-32.65%
Data source: www.StockCharts.com, last accessed January 5, 2015.

Too Late for Investors to Avoid Stock Market Risk?

Here’s more proof investors are quietly moving away from the stock market.

In 2014, volume on the Dow Jones Industrial Average declined to 87.39 billion—the lowest trading volume year since 2004! Trading volume is down 72% since 2009!

According to the Investment Company Institute, in the first 11 months of 2014, U.S. long-term stock mutual funds witnessed an outflow of $39.4 billion. In all of 2013, these funds had inflows of $18.5 billion. Also, while the monthly figures for the last month of 2014 are not yet available, looking at the weekly data, investors sold U.S. stock mutual funds again—about $13.0 billion worth. (Source: Investment Company Institute web site, last accessed January 5, 2015.)

And the return on stocks has been declining. After a stellar 2013, the Dow Jones Industrial Average rose only 7.5% in 2014. The Russell 2000 Small Cap Index rose only 3.8% in 2014—its slowest annual rise since 2011. (Source: www.StockCharts.com, last accessed January 5, 2015.)

Dear reader, the risks associated with owning stocks (that I talked a lot about in these pages in 2014) are starting to become a mainstream concern. Uncertainty is increasing. The risks of owning stocks at this point in the rebound from the 2009 stock market lows are very high.

About the Author - Michael Lombardi, MBA at Profit Confidential, a daily publication for Lombardi Financial customers.  (EconMatters author archive Here

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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