Bullish Sentiment Rebounds Even as More Than Half of Traders Believe the Market is Over-Valued

Recession fears ease but inflation concerns remain; Most traders expect continued volatility, but 80% say they'd buy the dip if markets wobble

Charles Schwab, a leader in investing and trading with $10.76 trillion in total client assets, today announced the findings of its Q3 2025 Trader Sentiment Survey which revealed a notable rebound in market optimism among traders. Bullishness has doubled since last quarter, with 57% of traders now expressing a positive market outlook – the highest level since the survey was established in 2022. At the same time, recession fears have steeply declined, with only 31% citing concerns compared to 63% in Q2.

Still, the optimism comes with caution. Over half (57%) of traders believe the market is currently overvalued. Only 24% feel a high degree of conviction in their three-month outlook and more than three-quarters (85%) noted that they expect volatility to either stay the same (36%) or increase (49%) through the remainder of 2025.

Meanwhile, most traders (80%) report they plan to ‘buy the dip' if further volatility is seen in Q3, up from 61% of traders who said the same in Q2. Those who bought the dip last quarter were largely rewarded.

In the short-term, the political landscape remains traders' top concern (22%), followed by a correction/market volatility (16%) and geopolitical issues (15%).

"Last quarter, traders faced heightened uncertainty around tariffs and inflation, and that uncertainty left them somewhat battle-scarred. While sentiment has no doubt rebounded this quarter, that optimism is tempered by caution," said James Kostulias, Head of Trading Services at Charles Schwab. "The external pressures may be easing, but they haven't quite receded from view. We know by looking at the way they're approaching leverage and margin, for example, that traders aren't ignoring the risks before them. The dissonance between their reported bullishness and valuation concerns speaks to the fact that traders are carefully navigating a complex moment, evaluating a lot of factors, and remaining nimble as they move through the second half of the year."

Economic Outlook: Inflation Expectations Persist, but Stagflation Fears Ease

While recession fears have receded, traders expect inflation – a major question mark for the economy – to stick around. A majority (55%) believe inflation will remain steady, and 29% think it will reignite. That said, concerns about stagflation have dropped nearly 20 points, indicating reduced anxiety about the potential for a combination of slow growth and high prices.

Trader expectations for Federal Reserve action remain largely unchanged from last quarter. Most anticipate rate cuts in 2025, but few expect reductions to exceed 100 basis points.

Meanwhile, tariff developments continue to influence trader behavior. A majority (55%) report trading in response to tariff policy over the past four months, with views divided on their economic impact – 52% see tariffs as moderately to significantly negative for the economy, while 36% view them positively.

"Traders increasingly rely on Schwab for a best-in-class trading experience that helps them stay engaged, find opportunities, and manage their risk through times of uncertainty," said Kostulias. "We saw clear evidence of that in Q2. As tariff announcements and geopolitical concerns moved markets, we saw our two biggest days for trading volume in Schwab history and daily average trading volume for the quarter reached 7.6 million trades per day, up 38% from last year."

Sector and Asset Class Views

At the sector level, traders are the most bullish on IT (63%), Energy (56%), and Finance (51%), and the most bearish on Real Estate (44%) and Consumer Discretionary (39%). Bullishness toward the IT and Finance sectors saw big jumps, rising 27 points and 19 points respectively from Q2 to Q3.

Traders are bullish on AI stocks (62%), growth stocks (56%), domestic stocks (55%) and equities in general (55%). Notably, fixed income bullishness dropped 10 points from 41% in Q2 to 31% in Q3, and commodities held steady at 39% across both quarters.

While traders clearly see a lot of opportunity in emerging technology, AI and Mega-Cap Tech stocks are nonetheless considered the most crowded trades. Four out of ten (39%) traders believe AI to be the most crowded, while 35% view Mega-Cap Tech stocks (there is a big overlap in AI stocks and the Mega cap Mag 7, how should people reconcile that? as the most crowded trade (up nearly 10 points from 26% in Q2).

Overall, nearly six in ten (57%) traders say now is a good time to invest. And they're acting on those intentions – 53% plan to move money into individual stocks, and 42% intend to add funds to their broader portfolios.

About the Charles Schwab Trader Sentiment Survey

The Charles Schwab Trader Sentiment Survey is a quarterly study exploring the outlooks, expectations, trading patterns and points of view of clients at Charles Schwab–who actively trade equities or trade options, futures, or forex. The study included 1,323 Active Trader clients at Charles Schwab and was fielded from July 8 – 14, 2025.

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.

Disclosures

This material is intended for informational purposes only. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

Investing involves risk, including loss of principal, and for some products and strategies, loss of more than your initial investment.

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Margaret Farrell

Director, Corporate Communications

(203) 434-2240

[email protected]