Move as expected
As expected, the Federal Reserve raised interest rates by 0.25% in March, marking the first increase of 2018. According to E*TRADE Financial Corporation (ETFC), the Federal Reserve could raise interest rates at the June 2018 meeting, too. Even though interest rates are increasing, the real rate is still negative, implying that the real rate is less than inflation.
An improving US economy, a rise in government spending, and the new tax law could lead to higher inflation, prompting the Federal Reserve to increase interest rates. However, increasing interest rates are beneficial for E*TRADE as well as other brokerage companies (XLF), as they can generate more net interest revenues.
What should investors do?
E*TRADE Financial believes certain events, like the levying of tariffs and rising inflation, are affecting the equity markets.
E*TRADE also suggests that there’s an opportunity to purchase value stocks. In February 2018, the markets witnessed a correction.
While E*TRADE’s net income margin stood at 26.34%, peers LPL Financial Holdings (LPLA), Bank of New York Mellon Corporation (BK), and CME Group (CME) recorded 5.37%, 73.79%, and 40.08%, respectively, on a last-12-month basis.