The Charles Schwab Trader Sentiment Survey for Q3 reveals a shift in trader expectations towards a more optimistic view of the market environment. After two consecutive quarters of heightened recession anticipation, the latest survey indicates a brighter outlook among traders.

Key Findings

1. For the upcoming three months, 44% of traders are bullish about the U.S. stock market, a significant increase from 32% in Q2. Conversely, bearish sentiment has decreased from 52% in Q2 to 35%.
2. Although 69% of Schwab’s trader clients believe a U.S. recession is likely, this figure has dropped from 86% in Q2 and 87% in Q1. Among those expecting a recession, 64% now forecast its onset in Q4 2023 (26%) or later (38%). This is a notable shift from the previous quarter, where only 19% predicted a recession in the same timeframe.
3. Primary Concerns Around Investing: Traders have expressed concerns about the potential of a recession (14%), the Federal Reserve raising interest rates (14%), the political landscape in D.C. (13%), inflation (10%), and market corrections (10%).
   
4. The survey, which captures the perspectives of traders at Charles Schwab and TD Ameritrade, delves into primary concerns around investing, the likelihood and expected duration of a recession, and economic data influencing outlook. For instance, 77% of traders are influenced by inflation, 63% by consumer spending, and 55% by the labor market.

James Kostulias, head of Trading Services at Charles Schwab, commented on the findings, stating, “While traders certainly don’t feel we’re entirely out of the woods yet when it comes to an economic downturn, we’re seeing an influx of cautious optimism.” He attributed this optimism to a robust jobs market and relatively low unemployment rates. Despite a slight increase in inflation, it remains significantly lower than the highs of 2022.

Demographic Insights

Older traders are more bullish at 49%, compared to 41% for younger traders and 38% for retirees.

51% of traders believe it’s a favorable time to invest in stocks and other equity-based investments, an increase from 41% in Q2. Moreover, 53% feel they are in a better financial position than a year ago, a jump from 36% in the previous quarter.

Sector and Asset Class Perspective

Traders are most bullish on the energy, information technology, and health care sectors. Real estate is the only sector where the majority (54%) are bearish.

On the asset class front, traders show bullishness towards value stocks, domestic stocks, growth stocks, and equities in general.

AI’s Role in Trading

Artificial Intelligence (AI) is gaining traction in traders’ decision-making. 66% of traders believe AI will have a significant impact on the market in the next 1-3 years. Furthermore, 35% are already incorporating a company’s use of AI in their stock analysis, and 51% are bullish on AI stocks for the next quarter.

The Charles Schwab Trader Sentiment Survey is a quarterly study that included 768 Active Trader clients at Charles Schwab and TD Ameritrade, conducted from July 6 – August 3, 2023.

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