WESTLAKE, Texas--(BUSINESS WIRE)--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
|
Likelihood of a
|
Expected length of a recession |
Hedging against down
|
|||||||
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
