As financial markets have weakened in 2022, trading volumes have fallen across all asset classes, according to a new report by Bank of America analyst Craig Siegenthaler.
Siegenthaler said Friday that these declining volumes are weighing on exchange stocks, such as CME Group Inc CME, Intercontinental Exchange Inc ICE, Nasdaq Inc NDAQ, Cboe Global Markets Inc CBOE and Tradeweb Markets Inc TW.
The Numbers: Siegenthaler said exchanges enjoyed a near-perfect storm in the first quarter of 2022 thanks in part to the stock market correction, Russia-Ukraine conflict and rapidly rising interest rate expectations, all of which drove trading volume higher. In the second quarter, trading volumes declined to a more historically normalized level.
"This has driven our slightly more cautious stance on the exchange stocks as the peak 'risk-off' moment has already passed while we are positive on NDAQ and TW which we view as having stronger embedded organic growth drivers," Siegenthaler said.
Bank of America reported total U.S. cash equities trading volume is down 2% in the second quarter and total single-stock options volumes are down 8%. Equity futures volume, interest rate volumes, energy volumes and agricultural and metals volumes are also all down on a quarterly basis in the second quarter.
How To Play It: Siegenthaler said CME's futures volumes are down 11% in the second quarter, while ICE's futures volumes are down 13%. He said Nasdaq's 2% decline in cash equities volumes in the second quarter was supported by strong trading activity during the FTSE Russell indices rebalancing in June.
Here's a breakdown of Bank of America's rating and price targets for the exchange stocks mentioned:
- CME Group: Underperform rating, $200 target.
- Intercontinental Exchange: Neutral rating, $134 target.
- Nasdaq: Buy rating, $250 target.
- Tradeweb: Buy rating $102 target.
Benzinga's Take: In addition to unpredictability in the market, exchanges are dealing with unpredictability on the regulatory front as well. SEC Chair Gary Gensler recently outlined potential new requirements for brokers to submit retail investor orders to a new auction process through which firms will bid against each other to fill them.
Photo: katjen via Shutterstock
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