Another Sell-off On The Cards For Schwab, TD Ameritrade and E-Trade Stock?

by Trefis Team
Charles Schwab
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The largest brokerage firms Charles Schwab (NYSE: SCHW), TD Ameritrade (NYSE: AMTD), and E-Trade (NYSE: ETFC) saw their shares take a beating after the Fed cut interest rates on July 31. The brokerages stocks tanked more than 15% on expectations of additional rate cuts over the year. However, the brokerage stocks have rallied considerably last week due to positive actions by U.S. and Chinese authorities which resulted in the delaying of certain tariffs. As brokerage stocks are quite sensitive to the federal funds rate, Trefis summaries the recent political and economic developments integral to the FOMC’s actions in the upcoming meeting. With soft economic conditions lending support to a potential rate cut by the Fed this week, this will very likely trigger another round of sell-offs in brokerage stocks.

We compare the key operational parameters of the three largest brokerage firms in an interactive dashboard Charles Schwab vs TD Ameritrade vs E-Trade, to elaborate on the differences their revenue streams.  Additionally, you can find more of our Financial Services data here.

The U.S.-China Trade War Continues To Drive Market Sentiments

  • After imposing a 25% tariff on $250 billion of Chinese imports, the U.S. had proposed 10% tariff on the remaining $300 billion of Chinese goods in August.
  • Later in August, the Chinese government took retaliatory actions by imposing tariffs on $75 billion of U.S. goods.
  • As a result, the U.S. proposed a tariff increase of 5% on all Chinese imports to its earlier communicated 25% and 10% figures, to be effective in October and December.
  • The 10% tariff by the U.S. and retaliatory tariffs by China came into effect on September 1, with China lodging a complaint against the U.S at the World Trade Organization.
  • Currently, both the countries have agreed to a new round of trade talks in October and have shown some moderation in their actions.

Will The Emerging Positive Sentiments Be Enough For The Fed To Hold Rates Steady?

  • In August, the Fed’s Chair stated that the objective of monetary policy is to fulfill statutory goals and to consider trade uncertainties within the framework would be a challenge.
  • He further explained that the Fed is observing the impact of trade developments on its policy outlook and would take necessary actions when required.
  • The monetary policy’s aim is to ensure maximum employment and price stability, along-with sustainable GDP growth.
  • Per the recent reports on job creation and retail sales, the data supported moderate growth of the U.S. economy and subsequently led to a boost in market indices.
  • Positive sentiment also returned to debt markets with the 10-year bond yields returning to 2-percent levels from the yearly lows of 1.5%.
  • What remains to be seen is if the Fed sees these improving trends as reason enough to maintain interest rates in the near future at their current level of 2.00-2.25%.

We expect a favorable outcome of the dialogue between the U.S. and China in the coming months, because of which we maintain our share price estimate for Schwab, TD Ameritrade, and E-Trade at $47, $55, and $50, respectively.

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