Schwab: Traders shake off recession fears with more optimistic sentiment

Trader sentiment has improved in the early stages of the third quarter but there are still significant challenges according to a new survey from Charles Schwab.

There has been a notable drop in the share of respondents who think the U.S. faces a recession – 69% compared to 86% in Q2 and 87% in Q1.  Two thirds think it will begin in Q4 or later and most think it will be over within a year.

Asked about investing in U.S. stocks, 44% are bullish and 35% are bearish compared to 32% and 52% respectively in Q2 and almost two thirds are confident in making investment decisions.

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“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,” said James Kostulias, head of Trading Services at Charles Schwab. “This is no doubt thanks to a sunnier economic picture overall this quarter. The jobs market may be cooling somewhat, but it continues to be strong, and unemployment remains remarkably low, especially compared to pandemic-era highs. Even the most recent inflation numbers, while they do indicate a modest rise, are a far cry from the highs we saw in 2022. Concerns may remain, but bullishness is on an upswing.”

Energy and information technology, especially artificial intelligence, are the industries that respondents are most bullish about, along with healthcare, but real estate is the one area that most traders are bearish on. AI is also seen as having potential to influence the market and one third of traders are factoring its use into stock analysis.

DEMOGRAPHIC VARIATIONS

The Charles Schwab Trader Sentiment Survey also reveals that traders in mid-life years and older traders are more bullish (49%) on than the younger cohort (41%), but both groups are more bullish than retirees (38%).

“Retired and younger investors can be particularly sensitive to market swings, so it makes sense that they might feel a little less bullish compared to mid-life and mature investors who have experienced many market cycles over their lifetimes,” said Kostulias. “This experience could lead mid-life and mature traders to feel more comfortable taking calculated risks.