As the market continues to rise, investors jump in. If you are reading this article, you are interested in investing, right? Your interest and the interest of millions of other people paves the way for brokerage stocks to perform better. They have had a tremendous year. TD Ameritrade Holding Corp. (NYSE:AMTD) and E TRADE Financial Corporation (NASDAQ:ETFC) are up 60% and 66% respectively, while Charles Schwab Corp (NYSE:SCHW) is up 54%. Should you bet on the continuing interest in trading and investing?
TD Ameritrade Holding Corp. (NYSE:AMTD) reported that clients’ assets have grown to $524 billion, up 18% year-over-year. Average client trades per day increased 6% sequentially. Net new client assets grew 8%. Clients’ assets grew 17% at Charles Schwab, while E TRADE Financial Corporation (NASDAQ:ETFC) enjoyed a 14% rise in clients’ assets. Charles Schwab Corp (NYSE:SCHW) noticed that a modest rebound in client activity lifted trading revenue 7%.
What is causing this? First, it’s the market growth. As the market continues to make new highs, more people feel the need to profit from it. Market growth partly explains the growth in the clients’ assets. The next driver is the beginning of the shift from bonds to equities. The run for safety is mostly over and clients are willing to take risks. Due to the volatile nature of the market, equity trading involves more transactions, leading to healthy commission revenue.
Would this trend continue?
It takes time to regain confidence after such events as the recent crisis. The retail market is in the early stage of rebuilding this confidence. The shift from bonds to equities is likely to continue as people begin to prefer returns over safety. Next, the Federal Reserve would be ultimately unwinding its bond-buying program. This would lead to increased volatility in the market. The volatility brings more activity and leads to profits for brokers.
The development of trading platforms, as well as their availability across multiple platforms, would also contribute to the positive trend. Trading platforms are a lot more user-friendly than they were just five years ago. Everything is done to take the technical side off the investment process for the end user. The fact that clients can manage their money from tablets and smartphones, which they carry with themselves, would lead to increased confidence.
Which one should you choose?
Now that we’ve established that the macro trend is positive for brokerages, which one should you choose? These stocks have gone a long way up this year, pushing their valuations higher and higher. TD Ameritrade Holding Corp. (NYSE:AMTD) is trading at 20.52 forward P/E, and is the cheapest one according to this metric. Charles Schwab Corp (NYSE:SCHW) trades at 25.30 forward P/E, while E TRADE Financial Corporation (NASDAQ:ETFC) trades at 20.64 forward P/E.