Inflation Tests Traders as Fed Cuts Look Unlikely: Survey – SPDR Select Sector Fund – Energy Select Sector (ARCA:XLE), Vanguard Real Estate ETF (ARCA:VNQ)

May 23, 2024 12:59 p.m. | 2 minutes of reading

Retail traders’ general optimism about the U.S. stock market has waned over the years second quarter (Q2) of 2024.

Some 46% of retail traders expressed a bullish outlook, down from 53% in the first quarter, according to the latest Retail Trader Sentiment Survey. Charles Schwab.

Inflation is their main concern, rising from 9% to 19% quarter over quarter.

The survey incorporated responses from 920 active traders holding at least $2,000 in retail assets at Schwab.

Highlights

• Fed rate cut: Trader expectations for interest rate cuts have moderated considerably. Only 25% of traders now expect more than two rate cuts by the end of the year. This is a sharp drop from 47% in the first quarter. At the same time, the share of traders who think the Federal Reserve will not cut rates this year jumped to 32%. This is up from just 10% in the previous quarter. Unexpected increases in inflation in the first quarter and recent signals from Fed officials about the risk of prolonged high interest rates have influenced traders’ views. rate cut expectations.
• Recession fears are easing: While 36% of traders still view a recession as likely in 2024, more than half now view it as unlikely. Thus, 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 Select Energy Sector SPDR Fund (NYSE:XLE), reached 64%, the highest rate among all sectors. Only 11% are bearish. This is in stark contrast to the real estate sector, as tracked by the Vanguard Real Estate ETF (NYSE:VNQ), where 52% are bearish and 19% are bullish.
• Mixed feeling about AI: Although 56% of traders remain bullish on AI stocks, there are growing concerns about overvaluation. Around 44% consider AI to be the busiest sector.
• Strong interest in options trading: About two-thirds of traders plan to get into options trading in 2024. Interest in zero-day expiration (0DTE) options remains low, at 13%.
• Increased search and verification time: More and more traders are spending more time verifying or researching trades before execution due to their economic expectations.
• Skepticism towards cryptocurrencies: 79% of traders perceive cryptocurrencies as risky and 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 Retailer Sentiment Survey highlights a changing landscape for retail traders compared to the previous quarter, marked by growing inflation concerns and subdued inflation expectations. rate reduction.

Despite these uncertainties, traders continue to look for opportunities, particularly in the individual stocks and energy sectors. They maintain a cautious stance on cryptocurrencies and real estate.

Now read: US business activity rebounds in May, return to ‘Fed’s 2% target still seems elusive’

Image: Shutterstock

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