AI, Energy Stocks Gain Favor as Active Trader Confidence Jumps to 2-Year High

People who trade actively are increasingly optimistic about the stock market this quarter, with that sentiment rising markedly since late last year.

According to a Schwab quarterly client survey released Wednesday, market confidence is at its highest level in two years. Fifty-nine percent of Schwab clients who trade actively in the financial markets said they feel now is a good time to invest, up from 41% in the fourth quarter of 2023.

This quarter, 60% said they were better off financially than they were a year ago, compared with 33% who reported feeling that way in late 2023. This survey was conducted between July 9-19, 2024.

“Coming into the third quarter, traders reported higher levels of optimism about the markets and economy—and continued confidence in their own decision-making,” James Kostulias, Charles Schwab’s head of trading services, said.

AI Stocks Lead Top Picks

As for which stocks the traders were most excited about, artificial intelligence (AI) topped the list. Traders reported having a bullish sentiment over the next three months for AI (62%), domestic stocks (59%), growth stocks (58%), and mega-capitalization tech stocks (57%). The majority of traders (57%) were bullish about equities in general.

Yet the traders were feeling less enthusiastic about alternative investments like cryptocurrency. Only 22% and 21% had a bullish feeling about the new spot bitcoin and spot ether exchange-traded funds (ETFs), respectively.

When looking more broadly at which sectors traders had favorable views of, many were bullish on information technology (61%), energy (57%), and health care (49%). In contrast, fewer traders were enthused about the consumer discretionary (23%) and real estate (21%) sectors.

What Are Traders Worried About?

Although inflation was the top concern for traders last quarter, it fell to third place as more Schwab client traders anticipated relief in the form of rate cuts soon: 33% of respondents expect rate cuts of 50 basis points or more through the end of the year.

Recently, Federal Reserve Chair Jerome Powell indicated that there would be a rate cut at the September Federal Open Market Committee (FOMC) meeting, but it’s uncertain how large the cut will be.

In addition to economic worries, the most traders expressed concern about the political climate due to the impending presidential election. While 20% cited the political landscape in Washington, D.C., as their primary concern, 94% thought the November election would have at least some impact on the markets. The second top concern was a market correction.

Some traders are preparing their portfolios ahead of the election—44% said they were reducing risk in their portfolio and 25% are engaging in options hedging.

“A sizable portion are taking steps to manage risk, and even more are leaving the election out of their trading plans—a good indication that they are paying close attention but not being overly reactive,” Kostulias said.