Score Remains at Moderate Levels Despite Dip in August

The Schwab Trading Activity Index (STAX) decreased to 53.16 in August, down from its score of 54.81 in July. 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.

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Schwab Trading Activity Index vs. S&P 500 (Graphic: Charles Schwab)

The reading for the five-week period ending August 30, 2024, ranks “moderate” compared to historic averages.

“Schwab clients appeared to rotate out of equities and into fixed income securities as a means of de-risking, which pushed the overall STAX score lower this month,” said Joe Mazzola, Head Trading & Derivatives Strategist at Charles Schwab. “While the August trading period started with a bang on August 5 – a day that’s been called a ‘meltdown’ or ‘crash’ by many – the markets recovered remarkably quickly, and, despite net selling overall, we did see many Schwab clients using the volatility to their advantage and taking the opportunity to buy the dip.”

Volatility in equity markets persisted throughout the August STAX period. However, major indices did notch multi-day winning streaks, and the Dow Jones Industrial Average made a new high of 41,585.21 on the last day of the period, August 30. The “yen carry trade” was still in play in early August following the Bank of Japan’s raise of 15 basis points on July 31. Once the unwind completed, it likely reduced some of the selling pressure on U.S. equities. U.S. equity markets did experience another significant sell-off in late August, following some softer than expected jobs data.

On August 1, initial jobless claims came in at 249,000, slightly higher than expected. By itself, this metric is not enough to signal a softening labor market. However, the Federal Open Market Committee (FOMC) just one day prior noted that enough data points from recent months have pointed to progress towards employment and inflation targets and that a pivot towards easing of interest rates is imminent, with the announcement of a rate cut anticipated in September. The U.S. Bureau of Labor and Statistics released the Employment Situation Summary on August 2, which stated that the unemployment rate rose to 4.3% and non-farm payrolls rose by 114,000. Both metrics missed consensus estimates.