Recent reports indicate that the bid-ask spread in the U.S. has reached its widest levels since the onset of the COVID-19 pandemic. Goldman Sachs highlighted that the average bid-ask spread for U.S. S&P 500 stocks has increased by 22 basis points, positioning it in the 97th percentile for the highest spreads observed over the past decade. This widening of spreads is attributed to a dearth of liquidity in the market, particularly affecting off-the-run investment-grade bonds, which are described as virtually untradeable. Analysts suggest that the current market conditions reflect significant stress, with market makers pulling back and dealers hesitant to hold inventory. The situation is reminiscent of the liquidity crisis experienced in March 2020, with some experts cautioning that low liquidity can lead to increased volatility and erratic price movements in the coming weeks.
Liquidity falling, as the average bid-ask spread for US SPX stocks has jumped 22 bps (GS) This has reached the 97th percentile for the highest bid ask spreads over the last 10 years (4/7) https://t.co/lDhk3vBi3t
Top 10 S&P 500 stocks now account for 37.7% of the $SPX, the highest concentration in more than 60 years 🚨 Probably Fine? https://t.co/iHxfoOhm8Q
One of the best ways to deal with high volatility markets is to expect that sharp pullbacks can happen at any time. Currently, I size my cash levels, position sizing and buys with an expectation that $SPX can trade in a 2-3% daily range and singles in a 3-5% daily range.