What’s in – and what’s out – among stock traders according to the Charles Schwab survey

Traders have clouded the outlook for the US stock market, leaving meme stocks out and value stocks in, according to Charles Schwab’s latest quarterly survey of trader sentiment.

Sentiment is pessimistic, Barry Metzger, head of trading and education at Charles Schwab, said in a media briefing before the survey results were released. The bearish sentiment evident in the first quarter deepened in the fourth quarter of this year, according to the survey.

CHARLES SCHWAB TRADER SENTIMENT SURVEY

Most traders said they expected a U.S. recession, with nearly 60% saying they believe the U.S. economy is already in a downturn or that one would start by the end of 2022, according to the survey. The Charles Schwab and TD Ameritrade trader customer survey was conducted October 5-17.

Meanwhile, the US jobs market remained strong, with historically low unemployment and inflation that showed signs of moderating in October based on a weaker than expected reading consumer price index released last week. But investors in general have worried that the Federal Reserve’s rapid pace of interest rate hikes this year to combat high inflation could still push the US into recession.

Traders reported in October that they were down in international stocks, cryptocurrencies and meme stocks, Metzger said, noting, “Crypto meme stock exposure is at a particular low we’ve seen all year.”

Last week, concerns mounted across the crypto industry the breathtaking collapse of FTX, once the third largest crypto exchange in the world. FTX filed for bankruptcy protection in the US on Friday.

bitcoin BTCUSD,
-0.97%
Prices are down 65% this year through Monday, according to CoinDesk.

Read: If Sam Bankman-Fried committed fraud, he will be confronted with the music in the US, legal experts say

The US stock market plummeted in 2022 as the Fed hiked interest rates with the S&P 500 index SPX
+0.87%
down around 17% through Monday.

Still, traders have “eyes on a few different sectors and categories” that they think will do well, Metzger said, noting that they are bullish on value stocks and fixed income, as well as energy, healthcare, utilities and consumers are staple sectors.

CHARLES SCHWAB TRADER SENTIMENT SURVEY

The reference rate for 10-year government bonds TMUBMUSD10Y,
3.795%
was up 3.865% on Monday, up from a 2022 low of 1.628% in January, according to Dow Jones Market Data.

The top concern for traders was the Federal Reserve’s rate hike, followed by worries about inflation and politics inside and outside the US, the survey showed.

Meanwhile, traders will be listening to Fed spokesmen elect members of the Federal Open Market Committee for clues about potential Fed rate hikes, Shawn Cruz, senior trading strategist at TD Ameritrade, said during the media briefing. Cruz also pointed to economic data that he expects traders will likely focus on, such as the producer price index as a measure of wholesale inflation and readings from the purchasing managers’ index, known as the PMI.

“They give you a pretty good view of what’s happening at the basic economic level,” he said of PMI reports.

The Charles Schwab survey found that 21% of traders said they traded more single stock options this quarter, while 19% were more interested in switching assets into US Treasuries.

CHARLES SCHWAB TRADER SENTIMENT SURVEY

“When you look at trading activity, a few strategies currently stand out as the most popular among traders,” Charles Schwab said in a statement to the survey. “They trade more or equal stocks (63%), single stock options (53%) and ETF options (47%).”

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