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Most Traders Predict a Recession This Year: Schwab

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What You Need to Know

  • Yet 68% of respondents expect a recession to last for a year or less.
  • Only 20% say they're moving money out of the stock market to hedge against a continued down market or recession.
  • Although inflation remains the top investment concern for 21% of respondents, 79% think it will ease by the end of 2023.

Nine in 10 traders think a U.S. economic recession is somewhat to highly likely, and 74% expect it to begin this year, according to Charles Schwab’s third-quarter Trader Sentiment Survey, released Wednesday.

Eighteen percent of traders cite the potential of a recession as their primary concern, up 6 percentage points from the second-quarter survey.

At the same time, 68% of respondents expect a recession to last for a year or less, and only 20% say they are moving money out of the stock market to hedge against a continued down market or recession.

Forty percent of traders say they plan to add money to their portfolios at the same rate as last quarter, and 59% say they are taking the same or slightly less risk this quarter.

“Recession fears surpassed domestic and geopolitical worries in the third quarter amid ongoing concerns about inflation,” Barry Metzger, head of trading and education at Charles Schwab, said in a statement. “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.” 

The Trader Sentiment Survey is a quarterly study that explores the outlook, expectations and perspectives of traders at Charles Schwab and TD Ameritrade. The third-quarter poll was fielded from July 6 to July 18 among 968 active trader clients.

Inflation Drives Bearish Sentiment 

The survey found that 59% of traders are bearish, up 6 percentage points from the second quarter, with young traders experiencing the most significant dip in optimism. Only 28% of young investors reported a bullish outlook for the U.S. stock market, down 11 points from the previous quarter. 

“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 said. 

Although inflation remains the top concern around money and investing for 21% of traders surveyed, 79% think it will ease by the end of 2023. Likewise, most traders think the Federal Reserve will slow the pace of interest rate increases through the remainder of the year. 

Traders are generally confident in their ability to weather the storm. Of those who think the market is due for a significant correction, 69% said they are confident that they have a plan to withstand it. Half think this is a good time to invest, and 64% expressed confidence in their decision-making. 

In terms of sectors and asset classes, survey participants are broadly optimistic about health care, energy and utilities. Although at a sector level many are bearish on finance, 27% believe finance can be bought at a discount right now, and 39% think the same is true of tech. 

Half of traders said they are bullish on value stocks, and about half are bearish on growth stocks, international stocks and equities in general. Sixty-three percent also said they are bearish on both meme stocks and cryptocurrencies. 

Indeed, few traders reported plans to buy cryptocurrency; for those who plan to do so, most are not first-time crypto investors, according to the survey. 


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