Going Nowhere Fast

In the same way that I follow home building stocks to gauge the housing market, I look to the stocks and actions of the biggest brokerage houses to get a feel for the investing climate. The stock brokerage business is extremely sensitive to upcoming trends in the general stock market.

Here’s some news I’m following now:

— Merrill Lynch will likely report today its slowest quarterly profit growth of the past 12-month period.

— U.S. stock trading is declining as investors lose interest in stocks. The NYSE averaged only 1.3 billion traded shares a day this past June, the slowest pace since December. The NASDAQ traded an average of only 1.5 billion shares a day in June, its lowest trading volume in 10 months.

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— The Amex Broker/Dealer stock index clearly shows brokerage house stocks having topped out in March of this year. Merrill Lynch stock is down about 10% in the past three months alone.

— Goldman Sachs Group, to the surprise of many, told investors to cut their exposure to global equities. In its report, Goldman Sachs said a “sharp deceleration in profit” will keep global equities in a tight short-term trading range.

What does all this mean? It means business at the brokerage houses is not that great because trading volume is down. Yes, the brokerages are making money on internal trading and investment banking fees, but old-fashioned commission trading revenue is down.

There’s no big rush for investors to buy stocks… and there’s no big rush by investors to sell stock. Basically, we are going nowhere fast. I’m still very convinced that we remain in the grips of a bear market that started in 2000. If you are taking the “sit and wait” attitude with your big-cap mutual funds, you may want to question such a strategy.

The real money in stocks is made getting in and out at the right time. And if I had to guess, we’ll see selling pressure rise before we see buying pressure for stocks rise; ammunition to my theory that simply holding stocks through a long-term bear market does not work, whereas in-and-out, buy low/sell high stock trading does maximize profits.