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Zacks Rank #5 (Strong Sell) stock Charles Schwab ((SCHW - Free Report) ) is a financial services company that offers a broad range of investment and wealth management services. The company was founded in 1971 and is headquartered in San Francisco, California.
Schwab’s investment services include trading and investing in stocks, bonds, mutual funds, exchange-traded funds (ETFs), options, futures, and more.
Toxic Combo: Rising Costs + A Regional Banking Crisis
Prior to 2023, a rising interest rate environment was mostly viewed as a positive for the banking sector. However, the unusually rapid hikes from unprecedented, near-zero interest rates caused mayhem in the regional banking sector – leading to the collapse of Silicon Valley Bank (SIVB).
At the root of SVB’s collapse was a large amount of bank deposits in the long-term U.S. treasuries and mortgage-backed securities (assets that typically fall when interest rates rise). As word spread of SVB’s liquidity crisis and investment issues, depositors began to panic, leading to a classic bank run.
Though Schwab is not a regional bank, rumors and fears are leading to real world issues for the bank. According to Bloomberg, Schwab is “facing dwindling deposits”. As if that wasn’t enough, Schwab’s costs are rising rapidly and have been doing so for years. In fact, between 2016-2022 expenses rose at a compound annual growth rate of more than 15%.
Image Source: Zacks Investment Research
Industry Woes
Our studies show that stocks within the bottom half of the Zacks industry group list tend to underperform dramatically. By now, it is no secret that the banking sector is underperforming. The Zack’s Financial Investment Banking Industry is in the bottom 13% of all industries tracked by Zacks.
Image Source: Zacks Investment Research
Bearish Price and Volume Action
Schwab is dramatically underperforming the S&P 500 Index. Year-to-date SCHW is down 37.9%, while the S&P is up 6.1%. Furthermore, a few weeks ago, Schwab’s CEO tried to inject life into the stock buy purchasing one million dollars’ worth of stock. Since then, the stock has barely budged and is setting up in a bearish chart pattern.
Image Source: Zacks Investment Research
Takeaway
Between rising costs and dwindling deposits, Charles Schwab is stuck between a rock and a hard place. Expect volatility on both sides of the tape and avoid the stock at this juncture.
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Bear of the Day: Charles Schwab (SCHW)
Company Overview
Zacks Rank #5 (Strong Sell) stock Charles Schwab ((SCHW - Free Report) ) is a financial services company that offers a broad range of investment and wealth management services. The company was founded in 1971 and is headquartered in San Francisco, California.
Schwab’s investment services include trading and investing in stocks, bonds, mutual funds, exchange-traded funds (ETFs), options, futures, and more.
Toxic Combo: Rising Costs + A Regional Banking Crisis
Prior to 2023, a rising interest rate environment was mostly viewed as a positive for the banking sector. However, the unusually rapid hikes from unprecedented, near-zero interest rates caused mayhem in the regional banking sector – leading to the collapse of Silicon Valley Bank (SIVB).
At the root of SVB’s collapse was a large amount of bank deposits in the long-term U.S. treasuries and mortgage-backed securities (assets that typically fall when interest rates rise). As word spread of SVB’s liquidity crisis and investment issues, depositors began to panic, leading to a classic bank run.
Though Schwab is not a regional bank, rumors and fears are leading to real world issues for the bank. According to Bloomberg, Schwab is “facing dwindling deposits”. As if that wasn’t enough, Schwab’s costs are rising rapidly and have been doing so for years. In fact, between 2016-2022 expenses rose at a compound annual growth rate of more than 15%.
Image Source: Zacks Investment Research
Industry Woes
Our studies show that stocks within the bottom half of the Zacks industry group list tend to underperform dramatically. By now, it is no secret that the banking sector is underperforming. The Zack’s Financial Investment Banking Industry is in the bottom 13% of all industries tracked by Zacks.
Image Source: Zacks Investment Research
Bearish Price and Volume Action
Schwab is dramatically underperforming the S&P 500 Index. Year-to-date SCHW is down 37.9%, while the S&P is up 6.1%. Furthermore, a few weeks ago, Schwab’s CEO tried to inject life into the stock buy purchasing one million dollars’ worth of stock. Since then, the stock has barely budged and is setting up in a bearish chart pattern.
Image Source: Zacks Investment Research
Takeaway
Between rising costs and dwindling deposits, Charles Schwab is stuck between a rock and a hard place. Expect volatility on both sides of the tape and avoid the stock at this juncture.