Trading “limbo” reflects economy

Stock and bond market volatility and interest rates are unusually low. This is a reflection of the economic backdrop and is resulting in lower trading profits for investment banks.

What’s the point? As a fundamental shop, we would normally not be all that interested in day-to-day trading activity. What is interesting currently though, is the fact that “fundamentals” are having a noticeable impact on trading volume and volatility primarily because traders are confused about the direction of interest rates and the economy, both of which affect valuation and earnings, the two primary drivers of stock prices. Is this a problem? Sort of, but more importantly, it may be reflecting confusion in the  market over Fed policy, interest rates, the direction of the global economy and inflation, all of which has important implications for the markets and investment strategy. It may also be indicative of what may be lower secular returns on financial assets.

Link: http://www.bloomberg.com/news/2014-05-28/goldman-s-cohn-says-inactive-trading-environment-is-abnormal-.html