Stocks and exchange traded funds (ETFs) have rallied and continued to rally. But right about now is when investors begin to lose their carefree confidence, worrying about a possible pullback in the market.
Low trading volume and high interest in small groups of stocks by short-term investors who use high-frequency trading strategies has generated a market with high valuations that don’t correspond with the performance or prospects of underlying companies. This could result in short-lived rallies, writes David Weidner for The Wall Street Journal.
The Dow Jones Industrial Average and the S&P 500, both up more than 40% from March lows, have been running with the momentum generated from the banking bailout. The problem with the last few weeks’ gains is that there is a lack of corporate profits and decisive data to support the moves, Weidner writes.
Over the past week, trading volume was most active in the financial sector as banks were required to make secondary offerings to leave government programs earlier this summer.