Wall St. going to the dogs? We can only hope

The calendar says it's August, which is supposed to mean classic, sleepy dog days are straight ahead.

To which a lot of weary investors might say, "Bring 'em on -- please!"

The volatility in the stock market in July was vertebrae-fracturing in its intensity. The Standard & Poor's 500 index moved more than 1% (up or down) on 13 of the 22 trading days, or 59% of the time, according to market research firm Bespoke Investment Group.

Last week, the S&P 500 from Monday through Thursday recorded four straight days of 1% or greater moves. Since 1945, such streaks (at least four days in duration) have occurred 1.1 times a year, on average. In the last year alone, however, there have been six of them, Bespoke data show.

Some market pros say the volatility is becoming too much for their rational investor clients to bear, leaving the market even more in the hands of hour-to-hour speculators.

Increasingly, "The story is that there are no investors in the market -- so the traders are driving it up and down," said Phil Roth, veteran analyst at Miller, Tabak & Co. in New York.

The message in excessive volatility typically is that Wall Street is even more uncertain than usual about what's ahead. "It's telling us that investors don't know which way to turn," said Howard Silverblatt, senior index analyst at Standard & Poor's.

That certainly characterizes the way many people feel about the economic outlook. Investors know that they're supposed to start buying depressed stocks well before the economy starts to pull out of a bad episode (either a recession or a slowdown). But with the credit crisis still worsening, how can anyone tell how bad an episode we're facing or how long it will last? Many investors, or at least traders, change their minds daily. So we get what seem to be absurd short-term price moves.

If August is going to bring some kind of respite, a good place to start would be with financial stocks. The one-day moves in the S&P 500 financial-stock sector index have been enormous for the last four weeks, as the accompanying chart shows.

Since July 7, the S&P financial index has moved more than 5%, up or down, on eight trading days. That's the kind of volatility usually associated with penny stocks, not with the nation's premier financial institutions. (Although some, of course, are not so premier anymore.)

Could the ferocity of the daily swings be signaling that financial issues finally have hacked out a bottom? At Friday's close the S&P financial index was up 25% from its multiyear low reached July 15.

Then again, if July's rate of volatility extends into August, it wouldn't take more than a few down days to take back all of that net gain, and then some.