Overall optimism toward the U.S. stock market among retail traders has softened in the second quarter (Q2) of 2024.
Some 46% of retail traders expressed a bullish outlook — a decrease from 53% in Q1, according to the latest Trader Sentiment Survey from Charles Schwab.
Inflation is their top concern, rising from 9% to 19% quarter-over-quarter.
The survey incorporated responses from 920 active traders holding retail assets of at least $2,000 with Schwab.
Key Highlights
- Fed rate cuts: Trader expectations regarding interest rate cuts have moderated significantly. Only 25% of traders now anticipate more than two rate cuts by year-end. That's a stark decline from 47% in Q1. Meanwhile, the proportion of traders who believe the Federal Reserve will not cut rates this year has surged to 32%. That's up from just 10% in the previous quarter. The unexpected inflation increases in the first quarter and recent signals from Fed officials about the risk of prolonged high interest rates have influenced traders' expectations regarding rate cuts.
- Recession fears abate: While 36% of traders still see a recession as likely in 2024, more than half now consider it unlikely. As such, 40% of them believe in the Fed's ability to achieve a soft landing.
- Energy vs. Real Estate: Bullish sentiment in the energy sector, as tracked by the The Energy Select Sector SPDR Fund (NYSE:XLE), has reached 64% — the highest among all sectors. Only 11% are bearish. That's in stark contrast to the real estate sector, as monitored through the Vanguard Real Estate ETF (NYSE:VNQ), where 52% are bearish and 19% are bullish.
- Mixed AI sentiment: Despite 56% of traders remaining bullish on AI stocks, there is growing concern about overvaluation. About 44% view AI as the most crowded trade.
- High interest in options trading: Approximately two-thirds of traders plan to engage in options trading in 2024. Interest in zero days-to-expiration (0DTE) options remains low at 13%.
- Increased research and vetting time: More traders are spending additional time vetting or researching trades before execution due to their economic expectations.
- Cryptocurrency skepticism: A significant 79% of traders perceive cryptocurrencies as risky, speculative investments. Nearly two-thirds are uncertain about the future of cryptocurrencies as an asset class, and only 17% consider them smart investments.
Overall, Schwab's Q2 2024 Trader Sentiment Survey underscores a shifting landscape for retail traders compared to the previous quarter, marked by growing inflation concerns and moderated expectations for rate cuts.
Despite these uncertainties, traders continue to seek opportunities, particularly in individual stocks and energy. They maintain a cautious stance on cryptocurrencies and real estate.
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