The year’s strong opening by US equity markets in January was cause for celebration, but it wasn’t enough to drive overall first-quarter volumes higher than Q1 2012, even though a number of benchmark indices hit new highs.
January’s strong start to the year – US$4.15 trillion by value traded – could not be sustained, with equities volumes sliding in February to US$3.94 trillion and further in March to US$3.83 trillion. As a result, Q1’s total volume traded of US$11.53 trillion represented an 8.7% decrease on Q1 2012’s total of US$12.64 trillion, according to data from Thomson Reuters Market Share Reporter. Last year, Q1’s performance was driven in large part by high March volumes which hit US$4.5 trillion, the second strongest month of 2012.
The trading bump recorded this January – a month often buoyed by fund managers pursuing revised investment strategies – was hoped to mark a turning point after consecutive years of falling volumes and limited returns. According to the Investment Company Institute, investors sunk US$51.9 billion into stock mutual funds in January and February, the biggest New Year inflow since 2007, while bond funds received $52.9 billion.
The quarter saw a very strong performance by the Dow Jones Industrial Average, which hit a record 14,578.54 points by the end of March, having started the year at 13,412.55. This 8.6% increase also represented a landmark with the Dow Jones eclipsing its previous pre-2008 peak, with many believing the new mark to be a milestone in the US’s recovery from the 2008 financial crisis. Similarly, the S&P 500 exceeded its previous record, set in 2007, achieving an 11% increase during Q1. However, the return to lower trading volumes toward the end of the quarter suggested that transaction costs – and spreads in particular – may not have benefitted substantially from the rising investor confidence.
In terms of market share across US exchanges, there was little change throughout the quarter as NYSE topped the list, gaining 13.5% on its Arca market and 12.6% on its main market, for a combined total of 26.1% in March, a mild increase on February figures of 13.3% for Arca and 11.8% for the main market. Meanwhile, Nasdaq trailed with 16% in March, slightly down from 17% in February.
According to execution quality data from exchange operator BATS Global Markets, BATS’ BZX exchange provided the lowest effective spread during March for 268 stocks listed in the S&P 500, while Direct Edge’s EDGX exchange accounted for 94 symbols, followed by the Chicago Stock Exchange (54). To calculate the effective spread on executed marketable orders, BATS measures the execution price against the NBBO in effect at the millisecond in which the execution occurs.
Strong employment and factory order data have been cited for the strong performance of US equities to date this year but a number of downside factors – such as the impact of reduced government spending on US GDP growth – are keeping more cautious investors out of the market.