Traders stay optimistic but unease lingers over politics, valuations and stagflation

Traders remain upbeat about equity markets even as concern over key headwinds intensifies, according to the latest Charles Schwab Trader Sentiment Survey.

The survey shows that nearly six in ten active traders describe themselves as bullish, in line with the previous quarter and the highest since the survey’s 2022 debut. But at the same time, two thirds believe the market is overvalued, up from 57% last quarter, suggesting investors who are optimistic but wary, and eager to participate in the rally, while alert to looming risks.

Major worries include the political environment in Washington and fears of a market correction or volatility spike, but more than half of respondents also view stagflation somewhat or very likely within the next 18 months. On inflation specifically, 57% expect it to stay flat or fall in the near term, down from 72% last quarter, suggesting confidence in disinflation is slipping.

“Traders are currently in a cautiously bullish stance,” says James Kostulias, Head of Trading Services at Charles Schwab. “They’re confident in their ability to navigate uncertainty and see opportunities in the market, but they’re also realistic about valuations and the potential for volatility as we move toward 2026.”

Portfolio behavior also reflects this mixed tone with 42% planning to add to equities, while 32% are using options to manage downside risk. Gold (27%) and crypto (23%) are also drawing attention. By sector, traders are most bullish on information technology (61%), energy (58%), and utilities (52%), with healthcare seeing a notable ten-point jump in positive sentiment this quarter.

More than half (55%) of traders think it’s a good time to invest in stocks, and 45% now identify as risk-seeking compared with 30% who consider themselves risk-averse. Looking out three months, 52% expect to buy individual equities and 44% plan to invest in ETFs.

“Traders see the concentration in AI and mega-cap tech for what it is – both a source of opportunity and potential risk,” adds Kostulias. “Even with concerns about overvaluation, traders believe these stocks still have room to run going into next year, although they may simply be staying nimble by utilizing options to potentially hedge against some risk, looking at opportunities to trim some positions when they see steep rises, or adding to their positions when down days hit.”