Schwab clients continued to focus on tech equities, sold gains on some financials

There was a slight increase in trading activity by clients of Schwab in October, according to the firm’s proprietary measure of investor behavior.

The Schwab Trading Activity Index rose to 48.37 last month from 47.10 in September, with technology stocks continuing to be driving force in investors’ portfolios. But despite the gain for the index, it remains ‘moderate low’ compared to historic averages.

Among the most bought stocks by the firm’s clients were Palantir Technologies Inc. (PLTR), Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Advanced Micro Devices Inc. (AMD), and Meta Platforms Inc. (META).

Interesting to note that, while Schwab clients have shown strong interest in AI-related stocks, Nvidia has failed to appear in the top five most bought stocks for the first time since November 2023. However, this was not due to a lack of trading, but because both buy and sell sides were quite evenly matched.

The index also shows that clients pulled back from individual equities in favor of ETFs, mutual funds, and fixed income securities as they continued to de-risk and diversify.

Meanwhile, investors opted to take profits in some financial and banking stocks and reduce exposure to select companies that operate in retail, travel, and hospitality.

Among commonly sold equities by the firm’s clients were Alibaba Group Holding Ltd. (BABA), Walt Disney Co. (DIS), Carnival Corp. (CCL), Bank of America Corp. (BAC), and SoFi Technologies Inc. (SOFI).

“Earnings season has arrived once again, and the EPS ‘beat rate’ for companies that have reported thus far hovers around 79%, which is slightly better than expected,” said Joe Mazzola, Head Trading & Derivatives Strategist at Charles Schwab. “Analysts had lowered S&P 500 earnings estimates for Q3, expecting year-over-year growth of 4.2%, so while the beat rate is notable, the bar was also lower.”

At the top line, companies’ revenue beat rate appears softer than expected, tracking just above 59%.

“This points to cost cutting and margin expansion as the current primary drivers to earnings growth this quarter,” continued Mazzola. “Leadership rotation has helped the indices preserve bullish trends, but clients continue to de-risk at the single-stock level, as they rebalance equity portfolios as well as rotate into fixed income.”