More traders turn bullish in first quarter even as market shows signs of fatigue, Schwab survey says

Despite growing concerns over market fatigue, a new survey from Charles Schwab indicates that more traders are turning bullish in the first quarter of 2025. The report highlights a shift in sentiment among retail and institutional investors, even as key indices show signs of slowing momentum following last year’s rally.

Bullish Sentiment Rises

According to the Schwab Trader Sentiment Survey, 62% of active traders now describe themselves as bullish, a notable increase from 55% in the previous quarter. This optimism comes amid a backdrop of fluctuating economic indicators, Federal Reserve policy uncertainty, and corporate earnings that have been mixed at best.

“Despite some warning signs in the broader market, traders appear to be focusing on pockets of strength, particularly in technology, energy, and industrials,” said Randy Frederick, Managing Director of Trading and Derivatives at Schwab. “There’s an expectation that the Fed could cut rates later this year, which is helping sustain investor confidence.”

Market Fatigue Looms

While traders are showing increased optimism, the broader market is exhibiting signs of exhaustion. The S&P 500 has struggled to break through key resistance levels, and volatility has remained elevated as concerns over inflation, interest rates, and geopolitical tensions persist.

Analysts have pointed to a slowdown in mega-cap tech stocks, which drove much of the market’s gains in 2024. “We’re seeing reduced breadth in the rally—fewer stocks are participating in the uptrend, which can be a red flag,” noted Liz Ann Sonders, Schwab’s Chief Investment Strategist.

Key Drivers Behind the Optimism

Several factors have contributed to traders’ bullish outlook:

• Potential Fed Rate Cuts – The Federal Reserve has signaled it may ease monetary policy later this year, which traders see as a tailwind for equities.
• AI and Tech Resilience – While some mega-cap names have slowed, traders remain optimistic about artificial intelligence (AI) and semiconductor stocks.
• Economic Resilience – Recent GDP and labor market data suggest the U.S. economy remains stronger than anticipated, reducing fears of an imminent recession.

Cautious Optimism or Overconfidence?

Market strategists warn that the growing bullish sentiment may be at odds with underlying risks. “Historically, when traders become overly confident despite signs of slowing momentum, we often see short-term corrections,” said Frederick. “While optimism is warranted in certain sectors, investors should remain disciplined and consider risk management strategies.”

With the second quarter approaching, all eyes will be on whether traders' optimism translates into sustained market gains—or if the fatigue signals a potential pullback.