Wall Street Girds for a Dry Season

Hang out at the corner of Wall and Broad for any length of time these days, and it's almost guaranteed that someone will trot out a joke about how summer's come early, about how it feels like August.

Since the market topped out in March, trading volume has dried up. It has been more than two weeks since the last billion-share day on the

New York Stock Exchange. Look out over the floor at any time other than the always hectic open and close, and the pace is downright leisurely. On the

Nasdaq, the falloff in volume has been even more pronounced; after several days in excess of 2 billion shares, the average volume lately has been around 1.2 billion.

This is not the way it was supposed to be. The working assumption was that after the

Fed did its half-point rate hike on Tuesday, investors would get a little more sure of themselves, and the volume would pick up. But there was little certainty after this rate increase -- rather than a respite from thinking about

Alan Greenspan, people immediately started talking about the next hike.

"There's absolutely no direction in the market," says

JNK Securities

partner Scott Kaplan, who works on the floor of the NYSE. "A lot of these funds, they just don't want to do anything. People are afraid of getting hurt."

Explains Ed Hemmelgarn, president of the Cleveland-based hedge fund

Shaker Investments

, investors will likely remain cautious until two things occur: "People get convinced that the Fed is done with what it's going to do. And then they need to get convinced that the Fed's decreasing liquidity is not going to torpedo the economy."

That may mean the market will have to cope with lower volume and a lack of direction for some time -- perhaps through the actual summer doldrums and into the fall.

And so it's starting to look even more like the dog days, when people cut out early and try to beat the traffic out to Sag Harbor -- except, of course, that the water's still pretty cold out there and it will be at least another month before the

bluefish start running. Make no mistake: Behind those jokes about how it feels like summer, there's more than a bit of gallows humor.

Low trading volume can be, and has been, a horrible thing. Traders who lived through the bear markets of the '70s will tell you how depressing it was: some days up, most days down, and every day a bit less exciting than a late-September matchup between the

Devil Rays

and the

Tigers

at

Comerica Park

.

Nobody expects anything so awful this time around, but it would be foolish to think that low volume will not change the character of the market.

"This is going to be a challenging period," says Bob Dickey, managing director of technical analysis at

Dain Rauscher Wessels

in Minneapolis. "It's going to take patience to make money, rather than momentum. There are still things to do, and things that are happening, only it's much more selective."

And after the craziness of the fourth-quarter/first-quarter rally, maybe that's not so bad, Hemmelgarn reckons.

"Maybe it's me, but I don't think you're seeing more intelligent trading," he says. "Low volume usually isn't good news for the stock market, but maybe this is what we need to bring more rationality back."