Traders plan to hedge with real estate, crypto and gold
The latest Charles Schwab Trader Sentiment Survey reveals that bulls outnumber bears among active traders, with 46% reporting a bullish outlook for the U.S. stock market for the first three months of the year compared with 39% who are bearish. But nearly nine out of ten (88%) traders are concerned about inflation and many are taking action to hedge against it. At the sector level, traders are most bullish on Energy (63%), Finance (57%), and Health Care (54%) and most bearish on Information Technology (38%), Real Estate (37%), and Consumer Discretionary (31%).
The Charles Schwab Trader Sentiment Survey is a quarterly study that explores the outlooks, expectations, trading patterns and points of view of traders at Charles Schwab and TD Ameritrade. It found:
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Traders’ primary Q1 concerns
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Level of concern about inflation
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Buying expectations in 2022 as a hedge against inflation
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Expected number of interest rate increases this year
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Inflation
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19%
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Very concerned
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45%
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Real estate / REITS
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33%
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One
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4%
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A market correction
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14%
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Somewhat concerned
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43%
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Crypto or related products
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26%
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Two
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31%
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Rate increases
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13%
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Not very concerned
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10%
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Gold
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23%
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Three
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39%
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The DC political landscape
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11%
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Not at all concerned
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2%
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International stocks
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16%
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Four or more
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13%
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“Among traders, inflationary headwinds are of far greater concern than the COVID-19 pandemic,” said Barry Metzger, Head of Trading and Education at Charles Schwab. “Nearly half – 45% – of traders at Charles Schwab and TD Ameritrade told us that the economic impact of Omicron or other variants is a far lower concern this year. Of course, the most telling evidence of traders’ concern about inflation is the action they’re taking to address it in their trading.”
Meme Stock Redux
It’s been just over a year since the markets saw a sudden and dramatic spike in the prices of so-called “meme stocks” such as GameStop (GME) and AMC Entertainment (AMC). When asked if meme stocks are likely to have an impact on markets in 2022, 65% of traders said it’s likely – with 40% saying somewhat likely and 25% saying very likely. If there is another meme stock trading event this year, 30% of traders indicate an appetite to participate. More specifically:
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If a “meme stock” event happens in 2022…
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Some traders would be happy to play again
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18% say they participated in 2021 and likely would again in 2022
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Others would address their FOMO if they have the chance
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12% say they didn’t participate in 2021 but likely would consider it in 2022
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A few have regrets from the first time
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10% say they participated in 2021 but likely would not again in 2022
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A majority would say no thanks
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60% say they didn’t participate in 2021 and wouldn’t in 2022
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Notably, last year’s meme stock event led to a number of behavioral outcomes for traders.
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Takeaways from the 2021 meme stock frenzy
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I’m more aware of my risk tolerance and factor that in before making momentum-based trades
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35%
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I’m more careful about the sources I use to conduct my research
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22%
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I conduct more thorough research before making trades
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21%
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I’m more careful to diversify my portfolio
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15%
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“Education is perhaps the greatest legacy of the meme stock phenomenon,” Metzger continued. “In 2021, the TD Ameritrade Network had more than 26 million views of its financial news and insights, and Schwab Insights and Education content, which provides commentary on market events as well as resources for trading and long-term investing, had more than 24 million views. An influx of traders may have come to the market for meme stocks, but many have stayed and learned about the importance of doing their own due diligence, the value of third-party research, and how to utilize institutional-like trading tools and resources. Many have achieved greater balance in their portfolios as a result of this engagement,” he underscored.
Risk-Off
Drilling down into what traders did with their money over the last three months of 2021 versus what they expect to do this quarter reveals a movement toward risk-off strategies. Across a range of actions, traders are signaling a more cautious approach to the start of the year.
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Past three months
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Q1 2022
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Moved / will move money into individual stocks
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70%
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51%
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Added / will add money to investment portfolios
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53%
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38%
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Moved / will move money into ETFs
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47%
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35%
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Invested / will invest in cryptocurrency
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33%
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20%
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Moved / will move money into mutual funds
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15%
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10%
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Moved / will move money into fixed income investments
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13%
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10%
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Most Crowded Trade
Meanwhile, traders are often reluctant to follow the herd when it comes to two of the most popular investments of the moment. When asked to identify what they see as the “most crowded trade” today, meaning a position held by such a large group of traders and investors that they may become complacent about its potential risks, they identified two:
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The “most crowded” trade of Q1 2022
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Long Bitcoin or crypto-related investments
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30%
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Long electric vehicle related stocks
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27%
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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 728 Active Trader clients at Charles Schwab and TD Ameritrade between the ages of 18-75 and was fielded from January 5-16, 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.
(0222-2A18)
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