What's turning traders more bullish in 2024?

Traders are turning bullish on US equity markets and the economy, according to Charles Schwab's latest Trader Client Sentiment Report. Charles Schwab Head of Trading Services James Kostulias discusses the macroeconomic conditions that are enabling increasingly bullish behaviors from over half of traders.

"It's a combination of the macroeconomics and the overall economy and feeling a little bit better there," Kostulias explains to Yahoo Finance. "You'll also see in the numbers, trader confidence has risen a lot as well up to almost 70%, up 20% from the last quarter. I think that confidence does get driven by the macroeconomic factors, but it's also driven by the fact that we're finding traders being more and more analytical, more and more research-based, leveraging the tools, leveraging platforms, leveraging education and content... in order to make those decisions."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: All right, in the meantime, the Bulls are back in town. More than half of traders are feeling bullish about the US stock market according to a new survey from Charles Schwab. That's the highest reading of bullish sentiment since 2021 and a significant uptick from the quarter prior.

JAMES KOSTULIAS: With more on Schwab's trader sentiment survey, we're joined by James Kostulias, Charles Schwab Head of Trading Services. Thanks for being here. So this is a pretty big reading here. What is this kind of bullishness driven by? Does it tend to be pretty correlated with what the market is doing? Is that what's going on?

JAMES KOSTULIAS: Hey, Julie. Thanks so much for having me. Yeah, great, great question. So, obviously, the sentiment will be driven a lot by the macroeconomics of the environment.

But what we also see we do some behavioral work too with what we call the Schwab trading activity index where we monitor not only the sentiment here in the survey, but the actual actions the buying and selling that clients are doing. And we see a strong correlation between the two and the most recent Schwab trading activity index.

And so I think it's a combination of the macroeconomics and the overall economy and feeling a little bit better there. And you'll also see in the numbers. Trader confidence has risen a lot as well up to almost 70%, up 20% from the last quarter.

And I think that confidence does get driven by the macroeconomic factors. But it's also driven by the fact that we're finding traders being more and more analytical, more and more research-based leveraging the tools, leveraging platforms, leveraging education and content like your show in order to make those decisions. And all those are hallmarks of the Schwab trading powered by Ameritrade value proposition. And so I think it's a combination of the macroeconomic and actually what traders are actually doing.

JOSH LIPTON: And, James, so bottom line, people are feeling, it looks-- it sounds like more confident. When they look for the year ahead here, James, though, and you ask them, listen, what are the concerns? What do they tell you is on their wall of worry here? Is it inflation, election, geopolitics?

JAMES KOSTULIAS: Yeah, it's a great question, Josh. I would break it into two categories from a worry perspective geopolitics and the macroeconomic conditions sit at the top of the list. But then we also ask them, what else are they most believing will affect the economy? And that's sort of a combination of probability and materiality.

And so we see geopolitics sort of blend into both. But when they're actually thinking is going to have the biggest effect on the economy, they swing a little bit away from the macroeconomics and more towards the election, and interest rates, and what they think the Fed's going to do.

JULIE HYMAN: And so what are they doing with their money as a result of all this? Because I know you guys did some survey work on that front as well.

JAMES KOSTULIAS: Yeah, and actually, the work on what they're doing with their money is less survey-driven, Julie, and it's more actual looking at data. So it's not attitudinal, but it's actually behavioral. And so what are clients net buyers of and net sellers of.

And we do see strong correlations right now with what they're saying in the survey. So they're bullish on IT. They're bullish on health care.

I just saw the section you just did NVIDIA, right? It seems like everybody's bullish on NVIDIA these days. But we do see net buying in NVIDIA. We see net buying in Microsoft and Amazon as some of the bigger tech names.

And then we see a bearishness in the financial sector. And we sort of see that reflected in net selling of Bank of America. So we see both attitudinal and behavioral convergence here, which is interesting.

Sometimes you see what the sentiment is and what client behaviors are actually diverge a little bit. And that tells us something different. But strong correlation right now to what clients are saying in the sentiment survey and what they're actually doing.

JOSH LIPTON: All right, Schwab clients bullish on NVIDIA along with. It seems like everybody else, James. Thank you for joining us so much today. We appreciate it.

JAMES KOSTULIAS: My pleasure. Thanks so much for having me.