As U.S. stocks soar, ominous signs emerge: sluggish selling pressure suggests a correction is near?

According to Zhitong Finance APP, as the U.S. stock market continues to hit new highs, sellers are becoming scarce, which could be an ominous sign indicating excessive market confidence. The S&P 500 index has set record highs five times in the past nine trading days. However, according to Thrasher Analytics, the volume of declining stocks accounted for only 42% of the total trading volume on U.S. stock exchanges over the past month, the lowest level since 2020.

This phenomenon suggests that investors may have become overly optimistic in the context of a strong market rebound. Andrew Thrasher, co-founder of Thrasher Analytics, pointed out that this phenomenon has occurred before past stock market corrections—data shows that the S&P 500 index fell by at least 5% in three similar situations in 2020, 2019, and 2016.

Andrew Thrasher stated, "These data suggest that the market may be experiencing overly optimistic sentiment, leading to a slight correction after a rapid rise. I do not believe this will lead to a double-digit decline; rather, a normal correction of 3% to 5% is more likely, which is very common in a bull market."

Stock market investors have largely ignored a series of new developments in President Trump's trade war, including a string of new tariff threats—this contrasts sharply with the severe sell-off triggered when the White House first proposed tariff policies in April. The next test for the market will come next week, as the earnings season is about to begin.

Andrew Thrasher noted that traders currently have a strong preference for risk, as evidenced by their preference for offensive sectors such as technology and finance, rather than defensive sectors. He believes that once the market corrects, these investors are more likely to view it as a "buying opportunity on dips." Historically, market declines that occur during similar low selling pressure periods usually do not last long, generally not exceeding a few weeks.

Conflicting Signals

Since the low in April, the S&P 500 index has risen about 26%. Trading volume is just one of a series of market signals that investors use to gauge the rebound trend in the stock market. Currently, the signals present a mixed picture. On one hand, the high concentration of funds in large tech stocks has raised some concerns. On the other hand, the relatively light positions of some fast-paced institutional investors indicate that there is still room for the market to rise.

According to the strategist team at DataTrek Research, one of the positive signals in the recent stock market is the decline in market volatility, and this trend has accelerated in recent weeks.

At the same time, the Chicago Board Options Exchange Volatility Index (VIX), which measures investors' demand for protection against stock market downturn risks, fell to its lowest level since the end of February on Thursday, closing at 15.78, well below its long-term average of 19.5, and is continuing to decline However, strategists at DataTrek Research point out that this decline is not a complacent response from the market in the face of risks, but rather that investors have already priced in a series of "known uncertainties," such as trade uncertainties and concerns about economic growth. Historical data from the firm shows that since 1992, when the VIX has remained below its average for an extended period, the annual average return of the S&P 500 has typically performed strongly, ranging between 13% and 26%.

Nicholas Colas, co-founder of DataTrek, stated, "The market has an extraordinary ability to penetrate the noise and accurately price in future positive or negative events." "Of course, there are exceptions, but the market is usually more accurate than people expect."