Schwab Q3 Trader Sentiment Survey: Most Traders See a Recession Beginning This Year

By: The Charles Schwab Corporation via Business Wire

August 10, 2022 at 08:30 AM EDT

Inflation continues to drive bearish sentiment although trader confidence remains high

The latest Charles Schwab Trader Sentiment Survey reveals that nine in 10 traders see a U.S. economic recession as somewhat to highly likely and 74% anticipate it will begin this year. The potential of a recession is now the primary concern for 18% of traders, up 6% from the previous quarter. However, a strong majority (69%) expect that a recession would last a year or less and only one in five are moving money out of the stock market to hedge against a continued down market or recession. Many traders also plan to add money to their portfolios at the same rate as last quarter (40%) and most say they are taking the same or slightly less risk in Q3 (59%).

The Charles Schwab Trader Sentiment Survey is a quarterly study that explores the outlook, expectations, and perspectives of traders at Charles Schwab and TD Ameritrade. It found:

Traders’ primary Q3 concerns		Likelihood of a recession		Expected length of a recession		Hedging against down market/recession by:
Inflation	21%	Highly likely	43%	Less than 3 months	5%	Moving assets out of stock market	20%
Potential recession	18%	Likely	28%	3 – 6 months	24%	Gold	12%
The DC political landscape	15%	Somewhat likely	19%	6 – 12 months	39%	Bonds	10%
Geopolitical issues	9%	Somewhat unlikely	4%	1 – 3 years	28%	Crypto	6%
		Unlikely	1%	3+ years	3%	Not Hedging Against Recession	42%
		Highly unlikely	1%			Shifting Allocations or Other Actions	34%
		Don’t know	4%

“Recession fears surpassed domestic and geopolitical worries in the third quarter amid ongoing concerns about inflation,” said Barry Metzger, Head of Trading and Education at Charles Schwab. “Already though, we saw a strong finish for the markets in July. There is some optimism in traders’ outlook when it comes to the duration of a potential economic downturn, which most expect to be short-lived. And many traders are not taking specific action to hedge against a recession as they feel confident in their decision-making.”

Inflation continues to drive bearish sentiment

Traders have a more bearish outlook for the current quarter (59% are bearish vs 53% in Q2) with young traders experiencing the most significant dip in optimism. Only 28% of young investors report a bullish outlook for the US stock market, down 11% from the previous quarter.

Inflation remains the top concern around money and investing for traders (21%), but most think it will ease by the end of 2023 (79%). Likewise, most traders think the Fed will slow the pace of interest rate increases as we move through the remainder of the year.

Expected interest rate change at Fed meeting		Expected timing for inflation to ease
Increase more than .50 points	Sept: 18% Nov: 7% Dec: 6%	3Q 2022	13%
Increase .50 points	Sept: 43% Nov: 30% Dec: 18%	4Q 2022	16%
Increase .25 points	Sept: 30% Nov: 43% Dec: 39%	1Q 2023	18%
No change	Sept: 9% Nov: 20% Dec: 37%	2Q 2023	15%
		3Q 2023	10%
		4Q 2023	7%
		2024+	21%

Overall, traders are confident in their ability to weather the storm. Of the traders who think the market is due for a significant correction, most (69%) are confident that they have a plan to withstand it. Half think it’s a good time to invest and 64% of traders overall are confident in their decision-making.

“This is the first time some young traders are riding out a more prolonged bear market, so it’s no surprise their optimism took a hit,” Metzger continued. “The good news is that across generations, traders are confident in their ability to navigate challenging markets, which speaks to their mindset, but also the level of access they have to exceptional tools, resources and education to help them develop trading strategies and make decisions.”

Sectors and Asset Classes

Traders are broadly optimistic about Healthcare, Energy and Utilities, and though at a sector level many are bearish on Finance, a strong cohort believe Tech (39%) and Finance (27%) can be bought at a discount right now.

Bullish over the next three months		Bullish and currently at a discount		Bearish over the next three months
Health Care	54%	Tech	39%	Real Estate	65%
Energy	52%	Finance	27%	Consumer Discretionary	58%
Utilities	48%	Healthcare	25%	Finance	44%
Consumer Staples	40%	Energy	25%	Industrials	43%

Half of traders are bullish on value stocks, and about half are bearish on growth stocks (52%), international stocks (53%) and equities in general (52%). Traders are also notably bearish on meme stocks (63%) and cryptocurrencies (63%). Few traders plan to buy cryptocurrency and for those who do, most are not first-time crypto investors.

Buying the crypto dip
Own it and buying more	13%
Buying for first time	2%
Own it but not investing in more	20%
Do not own it and have no plans to	66%

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 968 Active Trader clients at Charles Schwab and TD Ameritrade between the ages of 18-75 and was fielded from July 6-18, 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.

0822-29BR