10-27-19 S&P 500 liquidity risks could compound market selloff

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Everyone be clear they pushed these markets higher using machines and algos the forwarding looking events are setting up at this point at all-time highs again with many problems set forth.

A lack of willing buyers could compound panic selling
A similar shortage of willing buyers and sellers of stocks could soon roil equity markets

Therefore, “average trading volume for S&P 500 stocks has been falling for years,”
The result is a bid-ask spread for the average S&P 500 stock that is close to a multi-year high.”
the rise of passive investing may create liquidity concerns because “buying and selling disciplines are determined solely by inflows and outflows
At an asset owner level, pension funds’ exposure to private equity has risen demonstrably amid a reach for returns “But any disturbance to private markets (IPO friction, funding shocks via credit or rates) could force pensions to raise cash for distributions by selling the more liquid parts of their portfolios, namely public equities.

Oct. 31st could be another date where liquidity concerns arise, as it’s “mandated cut-off for mutual funds to realize capital gains vis a vis the Tax Reform Act of 1986” and Dec. 31st may cause trouble as it’s the end of the fiscal year for most U.S. mutual funds.
As the significant equity benchmarks hover close to all-time highs, enthusiasm for the ongoing bull market appears to be mild, based on trading volume.

Average daily trading volume in S&P 500 index SPX, +0.41% stocks over the previous 90 days has fallen toward a 10-year low, declining to 7% of total market capitalization during the three months ended Oct. 19,

Quast pointed to other figures reflecting declining liquidity in S&P 500 stocks, including data from ModerIR that showed the average number of shares per trade has fallen from 248 in 2015 to 133 today. “A great illustration of the risks here is what happened in the fourth quarter of 2018,” he said, arguing that the nearly 20% decline in the S&P 500 index last year was exacerbated by a lack of willing buyers even as stock prices fell to attractive valuations.

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