As financial markets weakened in 2022, trading volumes fell across all asset classes, according to a new report from Bank of America analyst Craig Siegenthaler.
Siegenthaler said on Friday that these declining volumes are weighing on stock markets, such as CME Group Inc. CME, Intercontinental Exchange Inc ICE, Nasdaq Inc. NDAQ, Cboe Global Markets Inc. CBOE and Tradeweb Markets Inc TW.
Numbers: Siegenthaler said trading had a near-perfect storm in the first quarter of 2022, thanks in part to the stock market correction, the Russian-Ukrainian conflict and rapidly rising interest rate expectations, all of which have increases the volume of transactions. In the second quarter, trading volumes fell to a more historically normalized level.
Related Link: SEC Chairman Gensler Proposes ‘Open and Transparent Auction’ as Alternative to Controversial Order Flow Payment
“This has prompted our slightly more cautious stance on equity stocks, as the peak ‘risk’ moment has already passed while we are positive on NDAQ and TW, which we see as having stronger built-in organic growth drivers,” Siegenthaler said.
Bank of America reported that total cash U.S. equity trading volume was down 2% in the second quarter and total individual stock option volume was down 8%. Equity futures volume, interest rate volumes, energy volumes, and agricultural products and metals volumes are also all down on a quarterly basis in the second quarter.
Related Link: SEC Chairman Gensler Says Crypto Exchanges Are “Operating Outside the Law”: What You Need to Know
How to play it: Siegenthaler said CME futures volumes were down 11% in the second quarter, while ICE futures volumes were down 13%. He said the 2% drop in Nasdaq cash stock volumes in the second quarter was supported by strong trading activity during the rebalancing of the FTSE Russell indices in June.
Here is a breakdown of Bank of America’s rating and price targets for the exchange stocks mentioned:
- CME Group: Underperformance rating, $200 target.
- Intercontinental exchange: Neutral odds, target $134.
- Nasdaq: Buy rating, target $250.
- Business website: Target purchase of $102.
Benzinga’s opinion: In addition to market unpredictability, exchanges also face regulatory unpredictability. SEC Chairman Gary Gensler recently outlined potential new requirements for brokers to submit retail investor orders to a new auction process whereby firms will bid against each other to fill them.
Photo: katjen via Shutterstock