Last year was a blistering year for the stock market, with the S&P 500 returning 25 percent, including dividends. But the broad market’s performance was eclipsed by a variety of sectors, including financials, and even more specifically the brokerage firms that work with large numbers of financial advisors.
The NYSE ARCA Broker Dealers index closed 2024 at 805.35 after starting the year at 549.87, for an increase of 46.4 percent.
And Steven Chubak, managing director of Wolfe Research and a leading brokerage analyst whose universe of coverage includes 28 companies from investment banks to alternative asset managers, likes what he sees for the brokerage industry’s performance in 2025.
His top picks this year include the retail brokers LPL Financial Holdings Inc. and Robinhood Markets Inc., with the ticker symbols, respectively, LPLA and HOOD.
For “money center” banks, Chubak said Bank of America Corp., BAC, and Wells Fargo & Co., WFC, as his top picks. Rounding out Chubak’s list of top picks were the alternative asset managers Ares Management Corp. ARES, and KKR & Co. Inc., KKR.
“Following the post-election outperformance of financials, investors are still bullish, with more than 90 percent of our year-end survey respondents expecting financials to outperform the S&P in 2025,” Chubak wrote in a research note this week. “We are more selective and prefer those stocks and companies that exhibit better organic growth, idiosyncratic [net interest income] tailwinds, and (look like) Trump policy winners, which includes regulatory roll-back.”
Chubak noted that money center banks, which typically include large wealth management operations, alternative asset managers and retail brokers, were the favorite subsectors. His least preferred groups were universal brokers, such as Morgan Stanley, trusts and M&A independents - smaller investment banks like Evercore Inc.
Broker-dealers and registered investment advisors generate more fees from clients and revenue when stocks increase in value, and 2024 saw the broad stock market repeatedly hit new highs throughout the year. Still, that positive news for the industry needs to be weighed with other factors for mom and pop investors, one executive said.
“2024 was a good year for industry, and this year feels like we’re being shot out of a cannon,” said one senior brokerage executive who spoke privately to InvestmentNews. “The stock market kept going up, and that’s good for fees. The super wealthy got wealthier, but what does that mean more broadly?”
“There are a lot of hot spots for the country to worry about, from consumer debt, to the wage gap, to affordable housing,” he said.
Broker-dealers profit from higher interest rates because they make more money on clients’ cash, particularly in accounts that deposit or “sweep” clients’ cash, another executive noted.
“Cash sweep revenue has been a material portion of the profitability of broker-dealers since rates started rising in early 2022,” said Larry Roth, managing partner at RLR Strategic Partners. “This year could bring a reduction in rates but maybe not as severely as some had believed, which means continued healthy cash sweep and net interest income revenue.”
“And the new administration, under President Trump, and the Securities and Exchange Commission and other regulators will perhaps be friendlier, which is better overall for IPOs, M&A and the broad market,” he added.
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