In ominous sign, sellers are vanishing as U.S. stocks smash record

Sellers are growing scarce in the U.S. stock market, a potentially ominous sign of overconfidence as equities roar to new highs.

Equities have been on a tear, with the S&P 500 Index clocking its fifth record high in nine trading days on Thursday. When stocks do decline, there appears to be little conviction behind the moves: Trading volume for stocks that are falling has accounted for just 42% of total turnover on U.S. exchanges over the past month, on average. That’s the least since 2020, according to data compiled by Thrasher Analytics.

The phenomenon is a signal that investors may have grown overly exuberant during the market’s blistering rebound, said Andrew Thrasher, the firm’s co-founder. It has preceded past pullbacks in stocks, with the S&P 500 dropping at least 5% in the last three instances, which occurred in 2020, 2019 and 2016, Thrasher’s data showed.

The data “suggests that there could be overly bullish sentiment, which could then lead to a shallow pullback as the market gets a little bit ahead of itself,” Thrasher said. “I wouldn’t expect a double-digit type decline. A 3% to 5% pullback would be a normal occurrence within a bull market.”

Stock investors have largely shrugged off a series of recent developments in President Donald Trump’s trade war, including a flurry of fresh tariff warnings – a contrast with the steep selloffs that came when the White House first laid out its tariff policy in April. Another test of the market’s resolve comes next week, when earnings season kicks off.

Traders’ healthy appetite for risk – evidenced in part by their preference for sectors such as technology and financials rather than defensive ones – likely means they would see a pullback as an opportunity to buy on the cheap, Thrasher said. Past declines that followed similar lows in selling volume have been comparatively short-lived, typically lasting no longer than several weeks, he said.

Conflicting signals

Trading volumes are among a panoply of market signals investors are studying as they gauge the trajectory of the rebound in equities, which has taken the S&P 500 some 26% off its April low. For now, that dashboard shows a mixed picture: While factors such as a concentration in massive technology stocks have drawn concern, others, including relatively light positioning among some groups of fast-money institutional traders, suggest there may be room for the market to rise further.

Among the more recent positive signals for stocks is a decline in market volatility that has accelerated in recent weeks, according to strategists at DataTrek Research.

The Cboe Volatility Index, or VIX, which measures demand for options protection against equity declines, on Thursday fell to its lowest level since late February. The so-called fear gauge finished the day at 15.78, slipping even further below its long-run average of 19.5.

Rather than reflecting complacency in the face of risk, DataTrek strategists said the move suggests that investors have discounted “known unknowns,” including uncertainty over trade and worries over economic growth. The firm’s data going back to 1992 shows the S&P 500 generates strong annual average returns, ranging from 13% to 26%, when the VIX runs below its average for a protracted period.

“Markets have an uncanny ability to see through the noise and accurately discount both positive and negative future events,” wrote DataTrek co-founder Nicholas Colas. “There are exceptions, of course, but the market is usually more right than wrong.