Despite bearish outlook, 55% say a “January Effect” is likely to drive markets higher at the start of 2023

The latest Charles Schwab Trader Sentiment Survey reveals that nearly 60% of traders say it feels like the U.S. is in an economic recession or will be by the end of 2022. Most (55%) say it will last less than one year, but 45% say it will last longer than that. While traders have a predominantly bearish outlook for the U.S. stock market over the next few months, they are confident in their ability to navigate the environment and 91% of traders feel they will reach their financial goals. Still, more than four in 10 traders (42%) are taking on less risk in the current environment.

Traders expect some relief in January with 55% saying it’s at least somewhat likely we will see a “January effect” in which markets are driven up fueled by optimism for the year ahead. For the optimism to continue, traders would most like to see a decrease in inflation metrics (64%), improved geopolitical stability (53%), a change in Fed policy (51%), and strong corporate earnings (38%).

The Charles Schwab Trader Sentiment Survey is a quarterly study that explores the outlooks, expectations, and perspectives of traders at Charles Schwab and TD Ameritrade. It found:

“It’s environments like the one we’re now in that prove the value of the trading tools, resources and education we provide,” said Barry Metzger, Head of Trading and Education at Charles Schwab. “This is undoubtedly a tough time, but traders remain confident, engaged and resilient, and we continue to see strong trading volumes and buying across both equities and fixed income categories.”

Top concerns

The Federal Reserve’s continuing increase of interest rates is now the leading concern among traders, with 17% saying it’s their primary concern, while only 5% listed it as their primary concern last quarter. Inflation, geopolitical or global macroeconomic issues, and the political landscape in Washington D.C. follow as top primary concerns. With most seeing a recession as inevitable, it remains a primary concern for 13% of traders.

Most traders predict that the Fed will increase interest rates by at least .50 percentage points in December and don’t see rates dropping in the new year but are hopeful inflation will begin easing in 2023. Nearly half do not expect to take specific action to hedge against inflation, but those who will plan to buy Real Estate (25%), Gold (21%) and TIPS (16%).

Sectors, Asset Classes and Strategies

Traders are the most bullish on energy (71%) and health care (52%) broadly, and many also believe these sectors can be bought at a discount right now.

At the asset class level, traders are bullish on value stocks (48%), fixed income (37%) and domestic stocks (30%), with a considerable increase in enthusiasm for fixed income as 37% of traders are bullish on the category in Q4, compared to 26% in Q3.

Looking at trading activity, a few strategies emerge as the most popular among traders right now. They are trading more or the same of equities (63%), individual equity options (53%), and ETF options (47%).

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 813 Active Trader clients at Charles Schwab and TD Ameritrade between the ages of 18-75 and was fielded from October 5-17, 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.

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