Schwab Trading Activity Index™: October Score Increases Slightly Amidst Mixed Earnings Season

Rhea-AI Summary

The Schwab Trading Activity Index™ (STAX) increased to 48.37 in October from 47.10 in September, ranking 'moderate low' compared to historic averages. During this period, Schwab clients were net buyers of equities but continued rotating out of individual stocks into ETFs, mutual funds, and fixed income securities. The earnings season showed a 79% EPS beat rate, though revenue beat rates were softer at 59%. Clients sold positions in banking, fintech, retail, and travel sectors while maintaining interest in AI stocks. On a sector basis, investors were net buyers of Health Care, Utilities, and Consumer Discretionary, while selling was strongest in Information Technology, Financials, and Energy.

Positive

• All three major U.S. stock indices reached new 52-week and all-time highs
• 79% EPS beat rate, exceeding expectations
• Non-farm payrolls increased by 254,000, beating expectations by over 100,000
• Unemployment rate improved to 4.1%
• CPI showed improvement at 2.4% for trailing 12 months

Negative

• Revenue beat rate tracking just above 59%, lower than expected
• 10-year Treasury yield increased by 40 basis points
• VIX volatility index increased by 19.87%
• Continued client rotation out of individual stocks indicating risk aversion
• U.S. Dollar Index rose 3.82%, potentially impacting international business

Insights

Market Research Analyst

The October STAX data reveals significant shifts in retail investor behavior. Client rotation from individual stocks to ETFs, mutual funds and fixed income signals a defensive positioning despite market highs. The 79% earnings beat rate appears strong but comes against lowered expectations, while the modest 59% revenue beat rate suggests earnings growth is primarily driven by cost-cutting rather than organic growth.

The divergence between broad market performance and individual stock selling patterns is noteworthy. While indices hit new highs, clients actively reduced exposure to banking, fintech, retail and travel sectors. The changing dynamics in AI trading, particularly with NVIDIA's neutral net position, could indicate a maturing market perspective on tech valuations. The 40 basis point rise in 10-year yields and increased market volatility (VIX up 19.87%) suggest growing market uncertainty despite positive economic indicators.

Financial Analyst

The shift in retail investor positioning reflects broader market concerns about valuation and risk management. The continued rotation into diversified instruments while major indices reach new highs suggests sophisticated risk management by retail investors. Key economic indicators remain mixed - strong employment data with 254,000 new jobs and moderating inflation at 2.4% CPI, but rising yields and dollar strength could pressure corporate margins.

The sector-level flows are particularly telling, with defensive positioning into Healthcare and Utilities while reducing exposure to cyclical sectors like Technology and Financials. The 5.28% rise in crude oil prices and 3.82% increase in the dollar index suggest potential headwinds for corporate profitability, explaining the cautious approach despite positive market performance.

Schwab clients were net buyers of equities overall, but on a dollar basis they continued to rotate out of individual equities and into ETFs, mutual funds, and fixed income securities

WESTLAKE, Texas--(BUSINESS WIRE)-- The Schwab Trading Activity Index™ (STAX) increased to 48.37 in October, up from its score of 47.10 in September. The only index of its kind, the STAX is a proprietary, behavior-based index that analyzes retail investor stock positions and trading activity from Schwab’s millions of client accounts to illuminate what investors were actually doing and how they were positioned in the markets each month.

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

The reading for the four-week period ending October 25, 2024, ranks “moderate low” compared to historic averages.

“Earnings season has arrived once again, and the EPS ‘beat rate’ for companies that have reported thus far hovers around 79%, which is slightly better than expected,” said Joe Mazzola, Head Trading & Derivatives Strategist at Charles Schwab. “Analysts had lowered S&P 500 earnings estimates for Q3, expecting year-over-year growth of 4.2%, so while the beat rate is notable, the bar was also lower. At the top line, companies’ revenue beat rate appears softer than expected, tracking just above 59%. This points to cost cutting and margin expansion as the current primary drivers to earnings growth this quarter. Leadership rotation has helped the indices preserve bullish trends, but clients continue to de-risk at the single-stock level, as they rebalance equity portfolios as well as rotate into fixed income.”

In October, Schwab clients sold strength in some banking and fintech companies and reduced exposure to select companies that operate in retail, travel, and hospitality. Schwab clients remained very interested in the prospects of Artificial Intelligence (AI) and were net buyers in this space. However, a notable callout is that Nvidia (NVDA), synonymous with AI, didn’t finish the month as a net top five buy for the first time since November 2023, even though it was one of the most actively traded stocks. Activity in NVDA, on both the buy and sell side, was so evenly matched that on a net basis it evened out.

More clients were net buyers of equities than net sellers during the October STAX period; however, clients continued to rotate out of individual equities and into ETFs, mutual funds, and fixed income securities, suggesting the trend towards diversification and de-risking continues, though not to the same degree as the previous month.

All three major U.S. stock indices made new 52-week and all-time-highs during the October STAX period, which was notable considering the backdrop of rapidly ascending interest rates. The 10-year yield finished the STAX period 40-basis points higher. Improving economic data and a better-than-expected start to the earnings season perhaps played a part in bolstering market confidence. Overall, leadership rotation has helped the indices to preserve bullish trends. On a sector basis, clients were net buyers of Health Care, Utilities, and Consumer Discretionary. Selling was most pronounced in Information Technology, Financials, and Energy.

Economic data, for the most part, showed improvement throughout the period, and markets primarily reacted well to data. The U.S. Bureau of Labor and Statistics released its Employment Situation Summary on October 4, which showed non-farm payrolls increasing by 254,000, beating expectations by more than 100,000. The unemployment rate fell slightly to 4.1%. The S&P 500 traded up by more than 50 points following the data release. On October 10, the Consumer Price Index (CPI) came in better than expected at 2.4% for the trailing 12 months and the Producer Price Index (PPI) was unchanged and in-line with expectations. The S&P 500 traded 12 points lower the day of the data release but rose by 35 points the following day. Final second quarter Gross Domestic Product (GDP) was in-line at 3%; the primary drivers were increased consumer and federal government spending, as well as exports.

The CBOE Volatility Index® (VIX) moved higher in October and closed the period up 19.87%. The 10-year Treasury yield closed at 4.23%. The U.S. Dollar Index also rose, closing 3.82% higher at 104.26. Front month WTI Crude Oil futures rose sharply in the first half of the period, moderated in the second half, and closed up 5.28%.

Popular names bought by Schwab clients during the period included:

• Palantir Technologies Inc. (PLTR)
• Amazon.com Inc. (AMZN)
• Microsoft Corp. (MSFT)
• Advanced Micro Devices Inc. (AMD)
• Meta Platforms Inc. (META)

Names net sold by Schwab clients during the period included:

• Alibaba Group Holding Ltd. (BABA)
• Walt Disney Co. (DIS)
• Carnival Corp. (CCL)
• Bank of America Corp. (BAC)
• SoFi Technologies Inc. (SOFI)

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 millions 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.

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.

1124-3B9T

View source version on businesswire.com: https://www.businesswire.com/news/home/20241104496526/en/

At the Company

Margaret Farrell

Director, Corporate Communications

(203) 434-2240

margaret.farrell@schwab.com

Source: The Charles Schwab Corporation

FAQ

What was Schwab's (SCHW) Trading Activity Index score in October 2024?

The Schwab Trading Activity Index (STAX) increased to 48.37 in October 2024, up from 47.10 in September.

Which sectors were Schwab (SCHW) clients buying in October 2024?

Schwab clients were net buyers of Health Care, Utilities, and Consumer Discretionary sectors.

What were the top stocks bought by Schwab (SCHW) clients in October 2024?

The top stocks bought were Palantir Technologies (PLTR), Amazon (AMZN), Microsoft (MSFT), Advanced Micro Devices (AMD), and Meta Platforms (META).

How did Schwab (SCHW) clients react to AI stocks in October 2024?

Schwab clients remained very interested in AI stocks, though notably Nvidia (NVDA) didn't finish among the top five net buys for the first time since November 2023.