Schwab Trading Activity Index™: Score Rises Modestly Amid New-Year Rally

Rhea-AI Summary

Charles Schwab's latest press release highlights that Schwab clients were net buyers in January, with the most pronounced buying in the Consumer Discretionary, Energy, and Health Care sectors. The proprietary Schwab Trading Activity Index (STAX) increased to 44.73 in January, showing a slight increase from December. The STAX analyzes retail investor stock positions and trading activity, indicating that Schwab's clients were net buyers of equities in January, staying in step with the market rally. U.S. equity markets posted solid gains during the January STAX period, supported by positive economic data. The S&P 500 continued to reach new heights, and popular names bought by Schwab clients included Tesla, NVIDIA, Amazon, Microsoft, and Advanced Micro Devices.

Insights

Market Research Analyst

The recent uptick in the Schwab Trading Activity Index (STAX) suggests a cautiously optimistic retail investor sentiment, as the moderate increase indicates a slight rise in trading activity among Schwab's clientele. Retail investors' net buying behavior, particularly in Consumer Discretionary, Energy and Health Care sectors, reflects broader market trends where these sectors may have been perceived as undervalued or poised for growth. The preference for established tech firms, often referred to as the 'Magnificent Seven,' aligns with a trend towards seeking perceived safety in blue-chip stocks amidst market uncertainty.

It is important to note that the increase in the 10-year Treasury yield and the strengthening U.S. Dollar Index could signal investor anticipation of a more hawkish monetary policy stance than previously expected. This may affect sectors differently, with Consumer Discretionary potentially facing headwinds from higher borrowing costs, while Energy could benefit from higher oil prices as indicated by the rise in March Crude Oil Futures.

Financial Analyst

The data presented by STAX has implications for the stock market, as it provides insight into the positioning and sentiment of a significant segment of market participants. The equity markets' performance, with the S&P 500 reaching new heights, suggests a risk-on environment that was bolstered by better-than-expected economic data such as the nonfarm payrolls and GDP growth rate. However, the slight uptick in VIX indicates an undercurrent of risk awareness among investors.

From a financial analysis standpoint, the net buying of tech giants like Tesla, NVIDIA, Amazon, Microsoft and AMD may indicate a shift towards stocks with robust growth potential and strong market positions. Conversely, the net selling of stocks such as Bank of America and Walmart could reflect concerns over interest rate sensitivity or a rotation out of defensive stocks, respectively. These transactions could influence individual stock performance and sectoral shifts within the market.

Economist

The reported economic indicators, such as the nonfarm payroll numbers and the CPI, play a critical role in shaping investor expectations and, consequently, market dynamics. The nonfarm payroll increase suggests a robust labor market, which could translate into higher consumer spending power, potentially benefiting consumer-driven sectors. However, the hotter-than-expected CPI indicates persistent inflationary pressures that could prompt continued monetary tightening by the Federal Reserve.

The GDP growth rate exceeding expectations is a positive sign for economic resilience but juxtaposed with the anticipation of less monetary easing, it presents a complex picture for the markets. Investors will need to navigate the balance between economic growth and the potential for higher interest rates, which could dampen market enthusiasm and impact valuation multiples, especially in growth-sensitive sectors like technology and consumer discretionary.

Schwab clients were net buyers in January, with the most pronounced buying within the Consumer Discretionary, Energy and Health Care sectors

WESTLAKE, Texas--(BUSINESS WIRE)-- The Schwab Trading Activity Index™ (STAX) increased to 44.73 in January, up slightly from its score of 44.56 in December. The STAX is a proprietary, behavior-based index that analyzes retail investor stock positions and trading activity to illuminate what investors were actually doing and how they were positioned in the markets each month.

Schwab Trading Activity Index January 2024 (Graphic: Charles Schwab)

The reading for the four-week period ending January 26, 2023 ranks “moderate low” compared to historic averages.

“Schwab’s clients were net buyers of equities in January,” said Joe Mazzola, Director of Trading and Education at Charles Schwab. “While exposure was still relatively low when viewed in a historical context, we saw that for the most part, our clients stayed in step with the market rally, finding opportunities to increase exposure in particular to the ‘Magnificent Seven’ companies as the new year began.”

U.S. equity markets picked up right where they left off last year, posting solid gains during the January STAX period. Economic data supported the rally. The U.S. Bureau of Labor and Statistics’ Employment Situation Summary released on January 5 showed that nonfarm payrolls increased by 216,000 in December, which was better than expected. The unemployment rate was unchanged at 3.7%. On January 11, it was reported that the Consumer Price Index (CPI) rose by 0.3% for the month of December to 3.4% year-over-year, slightly hotter than expected. Later in the month, the U.S. Bureau of Economic Analysis released its first estimate of fourth quarter Gross Domestic Product (GDP), and the release showed an annualized growth rate of 3.3% during the quarter. While this was a notable slowdown from the third quarter rate of 4.9%, it was much better than the street forecast of 2%. This more resilient economic picture pushed back on the market’s anticipation of significant monetary easing in 2024.

During the January STAX period, the S&P 500 (SPX) continued to reach new heights, with a rise of 2.54% to close at 4890.97. The CBOE Volatility Index (VIX) inched higher from 12.45 to 13.26, reflecting an increase in risk premium, though it remained low by historical measures. The 10-year Treasury yield rose to 4.14%, reversing from its recent trend lower. The U.S. Dollar Index strengthened during the period, ending at 103.43. March Crude Oil Futures moved 8.9% higher, settling at $78.01 per barrel.

Popular names bought by Schwab clients during the period included:

• Tesla Inc. (TSLA)
• NVIDIA Corp. (NVDA)
• Amazon.com Inc. (AMZN)
• Microsoft Corp. (MSFT)
• Advanced Micro Devices (AMD)

Names net sold by Schwab clients during the period included:

• Bank of America Corp. (BAC)
• Walmart Inc. (WMT)
• General Motors Co. (GM)
• Carnival Corp. (CCL)
• Warner Bros. Discovery Inc. (WBD)

About the STAX

The STAX value is calculated based on a complex proprietary formula. Each month, Schwab pulls a sample from its client base of funded accounts, which includes accounts that completed a trade in the past month. The holdings and positions of this statistically significant sample are evaluated to calculate individual scores, and the median of those scores represents the monthly STAX.

For more information on the Schwab Trading Activity Index, please visit www.schwab.com/investment-research/stax. Additionally, Schwab clients can chart the STAX using the symbol $STAX in either the thinkorswim^® or thinkorswim Mobile platforms.

Investing involves risk, including loss of principal. Past performance is no guarantee of future results.

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Historical data should not be used alone when making investment decisions. Please consult other sources of information and consider your individual financial position and goals before making an independent investment decision.

The STAX is not a tradable index. The STAX should not be used as an indicator or predictor of future client trading volume or financial performance for Schwab. STAX data includes that from accounts of TD Ameritrade clients which have not yet transferred to Charles Schwab & Co., Inc., as part of our planned integration.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.

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 X, Facebook, YouTube, and LinkedIn.

0224-GZVW

View source version on businesswire.com: https://www.businesswire.com/news/home/20240205765717/en/

At the Company

Margaret Farrell

Director, Corporate Communications

(203) 434-2240

margaret.farrell@schwab.com

Source: The Charles Schwab Corporation

FAQ

What is the Schwab Trading Activity Index (STAX)?

The Schwab Trading Activity Index (STAX) is a proprietary, behavior-based index that analyzes retail investor stock positions and trading activity to illuminate what investors were actually doing and how they were positioned in the markets each month.

What sectors saw the most pronounced buying from Schwab clients in January?

The most pronounced buying from Schwab clients in January was within the Consumer Discretionary, Energy, and Health Care sectors.

What were the popular names bought by Schwab clients during the period?

Popular names bought by Schwab clients during the period included Tesla Inc. (TSLA), NVIDIA Corp. (NVDA), Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), and Advanced Micro Devices (AMD).

What were the names net sold by Schwab clients during the period?

Names net sold by Schwab clients during the period included Bank of America Corp. (BAC), Walmart Inc. (WMT), General Motors Co. (GM), Carnival Corp. (CCL), and Warner Bros. Discovery Inc. (WBD).