TRADING THE WEEK: Data Keeps Late-Summer Trading Muted

What goes up must come down. A little bit.

After a week that saw the major stock indexes climb to new heights, traders took profits last Friday content to that the market and economy weren’t making any drastic moves as the final two weeks of the summer begin.

Last week the volume traded on U.S. equity exchanges averaged 6.21 billion shares per day for the week ended August 12, according to Bats Global Markets data. That’s down from an average of 7.01 billion shares in the week ending August 5.

Looking ahead, stocks can likely hold their gains but will be subject to more whipsaw type trade, a trader in New York said, as volume is expected to dry up in the final two vacation weeks of the summer.

“No one expects a big selloff or major profit-taking, as the economic picture still looks good,” the trader said. “But the data doesn’t look so good so as to prompt a big change in either monetary policy or the investing community.”

As far as data goes, this week the market will get some key inflation data which can help hone the Federal Reserve’s perspective on interest rates. But for now, the Fed, the New York trader said, was still in a wait-and-see mode.

“We had flat retail sales report and a mild inflation report,” he said, “which augurs for moderation on the part of the Fed.”

And that was exactly what at least one Federal Reserve said in public remarks.

“As the economy gets closer to its goals, we can again pull our foot off the gas a bit and hopefully execute a nice, soft landing over the next couple of years,” San Francisco Fed President John Williams told the Washington Post last week.

Asked if the Fed’s gradual rate increases should include any rate hikes this year, Williams said, “In my view, it does,” the paper reported.

That was enough to give traders confidence to hold off on selling too much and keeping their bias to the upside and holding stock. If a rate hike were to occur, traders told Markets Media, then equities would be the asset class to hold rather than fixed income.

In other stock market news, last week the Big 3 exchange operators, Bats Global Markets, Nasdaq and the New York Stock Exchange announced they would be working together to harmonize key functions of the U.S. equity markets to increase resiliency during times of extreme volatility. In other words, finally work together when the market structure spasms.

According to a joint release, the exchanges plan to file with the U.S. Securities and Exchange Commission a set of exchange rules as well an update to the National Market System Plan to Address Extraordinary Market Volatility otherwise known as limit up / limit down. The LULD plan was approved as a pilot back in 2012 as a reaction to the May 2010 Flash Crash. LULD is designed to prevent trades in individual securities outside of specified price bands.

In the coming weeks, the group plan to address several market structure issues; eliminating the time periods where securities could trade without LULD Bands in place; reducing the number of trading pauses; standardize the timing of trading re-openings following a pause and get rid of the existing clearly erroneous trading rules while LULD is in effect.

Lastly, the exchanges said that they were each individually pursuing efforts on their own to further stabilize trading on their own respective networks.

This Week’s U.S. Economic Indicators of Interest:

More on Trading:

Retail Broker-Dealers: Throughput, Please

Brokers Gear Up for Tick Pilot

New Regs Weaken Research-Trading Link