Increase in interest rates
Brokerage companies (XLF) will likely benefit from the Federal Reserve’s hawkish outlook, as it would mean rising interest rates, which would improve their net interest income.
Charles Schwab (SCHW) managed to beat earnings estimates in three out of four quarters in 2017. In 2Q17, its actual EPS (earnings per share) were in line with its estimated EPS. In comparison, Interactive Brokers Group (IBKR) missed its EPS estimate in its December quarter.
TD Ameritrade Holding (AMTD) has stated that in April 2018, investors need to look at their investments and make any necessary adjustments, as in the month, financial and economic data will be released. Another brokerage company, E*TRADE Financial (ETFC), believes that in June 2018, another interest rate rise will take place.
According to Charles Schwab, the Federal Reserve’s most recent meeting in March 2018 indicated a hawkish tone. According to the brokerage giant, the Fed indicated that two more rate increases would likely be coming in the current year. Moreover, SCHW believes that in the coming years, the Fed will be raising interest rates more quickly than previously estimated.
Charles Schwab views the Fed’s hawkish tone as the result of an increase in government expenditure. The company stated that the Fed’s forecast with respect to GDP growth stands at 2.7% for the current year, while the previous estimate was 2.5%. The expectation for GDP growth in the next year stands at 2.4%, a rise compared to the previous estimate of 2.1%.