Inflation continues to drive bearish sentiment
although trader confidence remains high
The latest Charles Schwab Trader Sentiment Survey reveals that
nine in 10 traders see a U.S. economic recession as somewhat to
highly likely and 74% anticipate it will begin this year. The
potential of a recession is now the primary concern for 18% of
traders, up 6% from the previous quarter. However, a strong
majority (69%) expect that a recession would last a year or less
and only one in five are moving money out of the stock market to
hedge against a continued down market or recession. Many traders
also plan to add money to their portfolios at the same rate as last
quarter (40%) and most say they are taking the same or slightly
less risk in Q3 (59%).
The Charles Schwab Trader Sentiment Survey is a quarterly study
that explores the outlook, expectations, and perspectives of
traders at Charles Schwab and TD Ameritrade. It found:
Traders’ primary Q3
concerns
Likelihood of a
recession
Expected length
of a recession
Hedging against down
market/recession by:
Inflation
21%
Highly likely
43%
Less than 3 months
5%
Moving assets out of stock market
20%
Potential recession
18%
Likely
28%
3 – 6 months
24%
Gold
12%
The DC political landscape
15%
Somewhat likely
19%
6 – 12 months
39%
Bonds
10%
Geopolitical issues
9%
Somewhat unlikely
4%
1 – 3 years
28%
Crypto
6%
Unlikely 1% 3+ years 3% Not Hedging Against Recession 42% Highly
unlikely 1% Shifting Allocations or Other Actions
34%
Don’t know 4%
“Recession fears surpassed domestic and geopolitical worries in
the third quarter amid ongoing concerns about inflation,” said
Barry Metzger, Head of Trading and Education at Charles Schwab.
“Already though, we saw a strong finish for the markets in July.
There is some optimism in traders’ outlook when it comes to the
duration of a potential economic downturn, which most expect to be
short-lived. And many traders are not taking specific action to
hedge against a recession as they feel confident in their
decision-making.”
Inflation continues to drive bearish sentiment
Traders have a more bearish outlook for the current quarter (59%
are bearish vs 53% in Q2) with young traders experiencing the most
significant dip in optimism. Only 28% of young investors report a
bullish outlook for the US stock market, down 11% from the previous
quarter.
Inflation remains the top concern around money and investing for
traders (21%), but most think it will ease by the end of 2023
(79%). Likewise, most traders think the Fed will slow the pace of
interest rate increases as we move through the remainder of the
year.
Expected interest rate change at Fed
meeting
Expected timing for inflation to
ease
Increase more than .50 points
Sept: 18%
Nov: 7%
Dec: 6%
3Q 2022
13%
Increase .50 points
Sept: 43%
Nov: 30%
Dec: 18%
4Q 2022
16%
Increase .25 points
Sept: 30%
Nov: 43%
Dec: 39%
1Q 2023
18%
No change
Sept: 9%
Nov: 20%
Dec: 37%
2Q 2023
15%
3Q 2023
10%
4Q 2023
7%
2024+
21%
Overall, traders are confident in their ability to weather the
storm. Of the traders who think the market is due for a significant
correction, most (69%) are confident that they have a plan to
withstand it. Half think it’s a good time to invest and 64% of
traders overall are confident in their decision-making.
“This is the first time some young traders are riding out a more
prolonged bear market, so it’s no surprise their optimism took a
hit,” Metzger continued. “The good news is that across generations,
traders are confident in their ability to navigate challenging
markets, which speaks to their mindset, but also the level of
access they have to exceptional tools, resources and education to
help them develop trading strategies and make decisions.”
Sectors and Asset Classes
Traders are broadly optimistic about Healthcare, Energy and
Utilities, and though at a sector level many are bearish on
Finance, a strong cohort believe Tech (39%) and Finance (27%) can
be bought at a discount right now.
Bullish over the next three
months
Bullish and currently at a
discount
Bearish over the next three
months
Health Care
54%
Tech
39%
Real Estate
65%
Energy
52%
Finance
27%
Consumer Discretionary
58%
Utilities
48%
Healthcare
25%
Finance
44%
Consumer Staples
40%
Energy
25%
Industrials
43%
Half of traders are bullish on value stocks, and about half are
bearish on growth stocks (52%), international stocks (53%) and
equities in general (52%). Traders are also notably bearish on meme
stocks (63%) and cryptocurrencies (63%). Few traders plan to buy
cryptocurrency and for those who do, most are not first-time crypto
investors.
Buying the crypto dip
Own it and buying more
13%
Buying for first time
2%
Own it but not investing in more
20%
Do not own it and have no plans to
66%
About the Charles Schwab Trader Sentiment Survey
The Charles Schwab Trader Sentiment Survey is a quarterly study
exploring the outlooks, expectations, trading patterns and points
of view of active traders at Charles Schwab and TD Ameritrade —
defined as those making more than 80 equity trades, more than 12
options trades, or those who make futures or forex trades over the
course of the year. The study included 968 Active Trader clients at
Charles Schwab and TD Ameritrade between the ages of 18-75 and was
fielded from July 6-18, 2022.
About Charles Schwab
At Charles Schwab, we believe in the power of investing to help
individuals create a better tomorrow. We have a history of
challenging the status quo in our industry, innovating in ways that
benefit investors and the advisors and employers who serve them,
and championing our clients’ goals with passion and integrity.
More information is available at aboutschwab.com. Follow us on
Twitter, Facebook, YouTube, and LinkedIn.
Disclosures
Investing involves risk including loss of principal.
0822-29BR
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version on businesswire.com: https://www.businesswire.com/news/home/20220810005191/en/
Margaret Farrell Charles Schwab (203) 434-2240
Margaret.farrell@schwab.com
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