10.17.2014
By Terry Flanagan

OPINION: It’s Been a Good Month

The headline may read a bit odd, given that the S&P is down about 7% from its September high amid slowing economic growth and concerns about ebola, geopolitical tensions, and a significant slump in commodities.

But even the biggest bulls had to be unnerved by market conditions that persisted for too long before this recent tumult: low volatility, apathetic trading volumes and benignly climbing valuations.

Sure, longs were making money, but the worry-free ‘feel’ of the market over much of the past couple years was too good to be true. The market wasn’t showing the dispersion of opinions that is a hallmark of healthy markets; rather, it was more a situation of the rising tide of beneficent monetary policy lifting all boats. If trading were still floor-based, rather than a throng of shouting and gesticulating traders, you’d have seen a few orderly handoffs of buy orders here and there, but most traders would be idly standing by.

And the longer such a blasé market went on, the weirder it felt.

But things have changed over the past few weeks, as markets have whipsawed amid spikes in trading volume and volatility. Trade routers, order handlers and trading venues are doing brisk business.

To be sure, the market decline in itself is potentially worrisome. If it proves to be more than just a much-needed correction, say anything even remotely close to the 2008-2009 swoon, we’ll all be worse-off. Strong trading volumes aren’t going to offset a 30% decline in the S&P 500.

But it feels like a break.

It feels like a thunderstorm after a long period of warm and humid weather. Worse storms may be on their way, or the humidity may return, but for now, it feels refreshing.

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