Schwab Q4 Trader Sentiment Survey: A Recession May Already Be Here, But Traders Say It Will Be Short Lived

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:

Likelihood of a recession

 

Expected beginning of a recession

 

Expected length of a recession

 

Approach to risk

Highly likely

43%

 

It began in 1H 2022

28%

 

Less than 3 months

2%

 

A lot more risk

11%

Likely

27%

 

2H 2022

30%

 

3 – 6 months

12%

 

Slightly more risk

16%

Somewhat likely

19%

 

1H 2023

30%

 

6 – 12 months

41%

 

Same amount of risk

31%

Somewhat unlikely

4%

 

2H 2023

10%

 

1 – 3 years

39%

 

Slightly less risk

24%

Unlikely

2%

 

2024+

1%

 

3+ years

6%

 

A lot less risk

18%

Highly unlikely

1%

 

 

 

 

 

 

 

 

Don’t know

4%

 

 

 

 

 

 

 

 

“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%).

Likelihood of rates dropping in 2023

 

Expected timing for inflation to ease

 

Hedging against inflation with

Highly likely

4%

 

3Q 2022

10%

 

Real estate/REITS

25%

Likely

8%

 

4Q 2022

11%

 

Gold

21%

Somewhat likely

24%

 

1Q 2023

17%

 

TIPS

16%

Somewhat unlikely

20%

 

2Q 2023

18%

 

Agricultural commodities

10%

Unlikely

22%

 

3Q 2023

12%

 

International stocks

10%

Highly unlikely

18%

 

4Q 2023

9%

 

Crypto

9%

Don’t know

4%

 

2024

14%

 

Bank loans

4%

 

 

 

2025+

8%

 

None of the above

47%

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.

Bullish over the next three months

 

Bullish and at a discount

 

 

Bearish over the next three months

Energy

71%

 

Energy

37%

 

Real Estate

75%

Health Care

52%

 

Tech

33%

 

Consumer Discretionary

62%

Utilities

47%

 

Healthcare

25%

 

Tech

51%

Consumer Staples

43%

 

Finance

23%

 

Finance

47%

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.

(1122-2H4R)

Source: The Charles Schwab Corporation