Share prices of retail broker-dealers positioned for a bounce, analysts say

Earnings seasons for the wealth management industry for the third quarter are about to kick off. Publicly-traded companies could get a boost in share prices after the Federal Reserve eased interest rates in September, coupled with some firms' ability to reel in new clients and their assets, according to analysts.

It’s been a terrific 12 months for brokerage and wealth management stocks, with the NYSE ARCA Securities Broker/Dealer index (.XBD) increasing 40% since October 14, 2024, just a few weeks before the second election to President of Donald Trump, a Republican.

The index, which includes LPL Financial Holdings, Morgan Stanley and the Charles Schwab Corp., hits its low on April 7, when uncertainty over Trump’s tariffs were at its highest, before peaking at the end of September, reaching a high of more than 1,083.

Interest rate impact

But share prices for some firms have hit a snag recently. Lower interest rates can have a negative impact on retail brokerage stocks because they generate less interest income from client cash. Some firms may be in position to overcome that headwind, according to analysts.

LPL Financial (LPLA) has seen its share price decline 8.9% in the past month, trading Monday morning near $318. The share price for Charles Schwab (SCHW) is down about 1% over the last month, trading at $92.89 to start the week.

The stock price for these wealth management behemoths - LPL works with more than 30,000 financial advisors and Schwab is the leading custodian for registered investment advisors - could soon see a bounce, writes Jeff Schmitt, an analyst with William Blair.

A potential bounce?
 

“The resumption of Fed easing and recent sell-off in the stocks have created good buying opportunities among the custody providers in our coverage,” Schmitt noted in a research note Monday morning. He listed LPLA, SCHW, as well as Ameriprise Financial (AMP), SEI Investments Co. (SEIC), and StoneX Group (SNEX), as holding their own in a lower interest rate environment.

“Our analysis indicates that spread income should hold up fairly well for the group as client cash should continue to rise and the contraction in net yields should be modest,” Schmitt wrote. “This suggests that [earnings per share] should continue to expand for the group despite the headwinds.

“We favor LPL and StoneX as both also benefit from deal tailwinds and have the potential to grow EPS about 20% per year in 2026 and 2027,” he wrote. “Their valuations appear attractive as well. We also like Schwab given the potential for mid-teens [earnings per share] growth through 2027 as it continues to recover from sorting.”

Another analyst, Steen Chubak of Wolfe Research, on Monday morning pointed to LPLA, SCHW, Stifel Financial Corp. (SF), and Raymond James Financial (RJF) as having favorable near-term outlooks.

“It seems investors are beginning to warm up to LPLA again on expectations for cash and net new asset inflection, though positioning is more balanced,” Chubak wrote.

He noted that SCHW was “better liked,” and SF is improving net new asset trends.

And he pointed to Raymond James’ recent success in recruiting teams of advisors from Commonwealth Financial Network as a success, with LPL Financial completing its acquisition over the summer of Commonwealth.

“RJF has also been getting more love on Commonwealth recruiting success,” he wrote.