Market Structure Map

Helping IROs understand short-term market structure to maintain long-term peace of mind.

Sep 17-21—Separating Illusion from Reality

Trading now reflects revisions to mathematics and perceptions in models arising from the Fed's cut on 9/18. No surprise, but what matters is separating investing behavior from trading activity. (By the way, we saw bets in both directions setting up on 9/14 and 9/17—and how those bets have shaped behavior in the wake of the rate cut.)

IROs, this is why we need to understand trading too, not just investing. Otherwise, you might conclude that stock appreciation or pressure reflects positive or negative reactions from investors. It may. But what if you're wrong? You might adjust your messaging when there's no need to do so…or fail to revise when you should. To the degree we're able, then, we must separate illusion from reality.

Here's a great illustration: volume in our sample data pool 9/10-14 totaled 593,331,377 shares. Volume last week (9/17-21) in the pool—the same set of securities—was 593,341,951 shares. So, get this: the difference week-over-week in a half-billion-share pool was less than 10,000 shares. Yet market behavior would appear on the surface to be radically different one week versus the other.

The Wall Street Journal recently noted that currency trading represents $3.2 trillion-with-a-t dollars daily, up 70% since 2004. Derivatives volumes have soared. Commodities markets are, to use a scientific phrase, crazy busy right now. But equity volumes in our sample group were nearly dead ringers week over week.

Lesson? Equities are often platforms today for leverage, rather than ends in themselves. The good news is that it's not difficult to understand what sorts of trading desks control liquidity, IROs. Time and again we've observed that pressure on price for stable businesses results not from dissatisfaction on the part of investors but from reduced equity positions in proprietary trading models. If you're an investor relations practitioner, it's no longer optional to understand market structure.

 

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Market Structure Map

Our weekly Market Structure Map provides unique insights — free — on trading markets, with an exclusive focus on helping investor-relations professionals keep cool in the IR chair.

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