Slow Market

What Is a Slow Market?

A slow market is a market with low trading volumes and/or low volatility, or a market in which trade orders are not being filled as fast as possible. It may also be used to describe a market with few initial public offerings (IPO) or secondary offerings in the stock market, or new issuances in the corporate bond market.

Key Takeaways

  • A slow market is a market with low trading volumes, depressed prices, and/or low volatility.
  • In a slow market, there are few initial public offerings, secondary offerings, or new issuances in bond markets.
  • Slow markets make it difficult for investors and traders to make a profit as the market is not significantly moving in any one direction.
  • Slow markets are caused by little news flow that triggers market moves or after big market moves when the market consolidates.
  • Purchasing a home in a slow market can be advantageous for a buyer due to lower prices and increased incentives, but not financially beneficial to a seller.

Understanding a Slow Market

A slow market is one in which general financial activity is decreased in comparison to normal market activity. It often occurs in environments in which there is little news flow to trigger market moves, or after big market moves, when they are often described as being in a tight consolidation range. Markets can spend long periods grinding sideways, consolidating past trends while lowering volatility levels.

Slow markets witness little price changes, therefore, it is recommended that sellers not sell during a slow market, which would actually further strengthen the immobility of prices. Slow markets are generally considered to be illiquid markets because of this.

Financial Trading in a Slow Market

Traders who thrive on volatility and volume, like market makers, high-frequency traders, and momentum traders, hate slow markets that are trading sideways, instead of trending or moving between defined support and resistance bands in wide range-bound markets. It is hard to make money when the market is not moving in any real direction at all and gets stuck within relatively narrow trading ranges.

Slow, or flat, markets present an additional roadblock for momentum strategies because they rely on buying breakouts and selling breakdowns. Trading ranges upset this approach, with attempts to push above resistance or drop below support typically attracting reversals that can punish new positions with sudden losses.

Momentum traders will often reduce their trading frequency and position size during slow markets, and they will look for securities or sectors in slow markets that still exhibit strongly trending action that diverges from range-bound indices.

Real Estate in a Slow Market

Buying a home in a slow market is an advantageous move as sellers typically price their homes lower than they would in a normal, active market. In addition, because sellers would like to sell as soon as possible, because of carrying costs, they make buying their home more attractive in a slow market by offering incentives, such as paying for closing costs and repairs.

Because buyers are typically not buying in a slow market, sellers are more likely to accept an offer below the asking price. And similarly, because the market is slow, there is additional time to shop around and see what is available before making a decision.

Conversely, for the reasons above, selling a home in a slow market is not advisable; however, many homeowners end up having to sell at a specific time for multiple reasons, e.g. they had already started the process of buying another house, they are in the middle of a move, they need the cash for a particular reason, or they can no longer afford their mortgage because of a job loss or other financial setback.

Sellers have to understand that when selling a home in a slow market the expected value of their home or what it was going for before the market slowed is not relevant anymore. This can be difficult to understand but is important to adjust to quickly, otherwise their home won't sell.