Investor fears drive down trading volume

This month may be the slowest in the stock market in more than three years.

Trading volume, or the number of shares bought and sold, is down because there are fewer big investors buying stocks. And those who want to buy are worried about the job market and the European debt crisis -- and the budget impasse in Washington. If Congress and the White House don't agree on budget cuts and raising the government's borrowing limit, the U.S. is at risk of defaulting on its debt after Aug. 2.

Daily volume on the New York Stock Exchange is down 22 percent so far in July compared with the same period in 2010, according to data provider FactSet. About 3.7 billion shares have traded hands every day, down from 4.7 billion in July last year.

If that continues, July will have the lowest average daily trading volume since December 2007, says Patrick O'Shaugh-nessy, a research analyst at Raymond James.

Low volume is worrisome because it suggests that few investors are driving the stock market's gains or losses. That creates the risk for bigger price swings. When there are few buyers, someone trying to sell a stock may be forced to keep lowering the price in hopes that someone will want it.

A lack of volume also indicates that some investors don't believe that stocks are worth buying right now. "Volume in many respects represents conviction," says Jack Ablin, chief investment officer at Harris Private Bank. "And there's just very little conviction."

Traders have reason to be wary: Job growth is weak. Many investors were stunned when the government reported earlier this month that employers created just 18,000 new jobs in June. That was lower than the average of 215,000 monthly jobs created in February through April. And the manufacturing industry is in a slump, too. The Philadelphia Federal Reserve Bank said last week that manufacturing activity in the Northeast rose only slightly in July after falling to the lowest level in two years in June. -- AP