Amid the surge of the US stock market, ominous signs appear. Will the selling pressure suggest a looming correction?

At a time when the U.S. stock market is repeatedly hitting new highs, sellers are becoming scarce, a potentially ominous sign of market overconfidence. The S&P 500 index hit record highs five times in the past nine trading days. However, according to data from Thrasher Analytics, in the past month, the trading volume of declining stocks accounted for only 42% of the total trading volume on U.S. stock exchanges, the lowest level since 2020. This phenomenon suggests that investors may become overly optimistic in the backdrop of a strong market rebound. Andrew Thrasher, co-founder of Thrasher Analytics, pointed out that this phenomenon has occurred before previous stock market pullbacks - data shows that the S&P 500 index fell by at least 5% in similar situations in 2020, 2019, and 2016. Andrew Thrasher said, "These data indicate that the market may be experiencing overly optimistic sentiment, leading to a minor pullback after a rapid rise in prices. I do not believe this will result in a double-digit decline, but it is more likely to be a normal pullback of 3% to 5%, which is very common in a bull market." Stock market investors have largely ignored a series of new developments in the U.S.-China trade war, including a series of new tariff threats - a stark contrast to the severe sell-offs triggered by White House tariff policies in April. The next test for the market will come next week when earnings season kicks off. Andrew Thrasher pointed out that traders' preference for risk remains strong, as evidenced by their preference for offensive sectors such as technology and finance, rather than defensive sectors. He believes that once the market pulls back, these investors are more likely to see it as a "buying opportunity on the dips." Market declines during similar periods of low selling pressure in the past have usually been short-lived, lasting no more than a few weeks. Conflicting signals Since the low point in April, the S&P 500 index has risen by about 26%. Trading volume is just one of a series of market signals that investors use to gauge the trend of market rebound. Currently, these signals present a mix of optimism and concern. On one hand, the high concentration of funds in large tech stocks has raised some concerns. On the other hand, the relatively light positioning of some fast-paced institutional investors indicates that there is still room for market growth. According to the strategy team at DataTrek Research, one of the positive signals in the recent stock market is the decrease in market volatility, a trend that has accelerated in recent weeks. Meanwhile, the Chicago Board Options Exchange Volatility Index (VIX), which measures investors' demand for downside protection in the stock market, fell to its lowest level since late February on Thursday, at 15.78, well below its long-term average of 19.5, and is further declining. However, the strategy team at DataTrek Research pointed out that this decline is not a sign of market complacency in the face of risk, but rather investors have already priced in a series of "known uncertainties," such as trade disputes and concerns about economic growth. Historical data from the institution shows that since 1992, when the VIX is long-term below its average, the annual return of the S&P 500 tends to be strong, ranging from 13% to 26%. Nicholas Colas, co-founder of DataTrek, said, "The market has an extraordinary ability to penetrate noise and accurately price future positive or negative events." "Of course, there are exceptions, but the market is usually more accurate than people expect."