NEW YORK -- While the threat of war with Iraq has sent stocks falling sharply for more than a month, it is trading volume, not prices, that has taken the biggest hit and that poses the biggest risk to the market.
Most investors aren't selling - they're not trading at all, and that has given Wall Street extremely low volume and in turn the big price swings that are becoming routine.
Since the market's short-lived New Year's rally, volume has dropped to about 1.3 million shares a day on the New York Stock Exchange from close to 2 billion shares, the kind of robust activity seen frequently in the late 1990s bull market.
"Light trading volume means there is no interest on the part of retail investors and on some institutions, as well. We have a market in which no one is open for business," said Peter Cardillo, president and chief strategist of Global Partner Securities Inc. "The reason for that are the uncertainties concerning geopolitical problems, most notably Iraq."
With fewer shares changing hands, stocks are much more vulnerable to big declines. With few, if any, buyers, sellers have to drop their prices in hopes of attracting takers.
But stocks have also experienced brief surges as blips of optimism drive prices higher. The gains have also been the result of technical trading - investors who sold shares short, thinking the market would go even lower, have periodically been forced to buy stock to cover their positions.
That was the case with the market's rally on Friday, when the Dow Jones industrials gained 103 points.
"Investors looking to reposition their portfolios are having more of an impact on prices than they would have on an ordinary day," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.
Volume on the NYSE this month is down from an average of 1.6 billion for October, according to Lowry's Research Reports in Palm Beach, Fla. This is largely due to investors avoiding the market amid worries about a possible war with Iraq and the impact it could have on an already slow economic recovery.
"It is worrisome. For one thing, very light volume is symptom of a bear market," said Richard A. Dickson, senior market strategist, at Lowry's. "It is an indication that the bear market is not over yet."
What's particularly troubling to Dickson is the notion that there's more room for volume to drop off further and for prices to continue their sharp decline.
He said there are plenty of potential sellers waiting for bad news about Iraq or the economy to prompt them to unload shares. And meanwhile, no one wants to buy.
"When you have very light demand, any event that brings sellers out creates a vacuum and brings prices sharply lower," Dickson said. "That really gives you an example of how fragile a market in this condition can be. ... It's like an avalanche."
Analysts don't expect volume to trend higher until investors know more about the situation with Iraq, namely when and if there will be a war and how successful the United States will be.
"The low volume just relates to the uncertainty factor," Cardillo said. "There is just no one willing to make bets at this time."
On Friday, all Wall Street's major indexes claimed their second straight weekly wins.
For the week, the Dow rose 109.31, or 1.4 percent. It closed Friday at 8,018.11.
The Nasdaq composite index had a weekly gain of 38.85, or 3 percent, ending at 1,349.02 Friday. The Standard & Poor's 500 index had a weekly increase of 13.28, or 1.6 percent, finishing at 848.17 Friday.
For the week, the Russell 2000 index, the barometer of smaller company stocks, rose 5.86, or 1.6 percent. It ended Friday at 364.36.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,035.97, up 139.03 from the previous week. A year ago, the index was at 10,179.29.