Ratings in the short term
After the Trump administration announced that Chinese investments in US technology companies will be restricted, trade war fears grew, and the Dow Jones Industrial Average (DIA) responded with a sharp decline. The move could impact technology stocks and companies that indirectly rely on the technology sector.
The driving factors for brokerages in the first half of 2018 has been higher volatility, stronger consumer confidence, and expectations of interest rate hikes by the Federal Reserve. However, increasing trade tensions might lead to a reshuffling of the portfolios of individual investors, and the markets might see higher volatility. That could benefit brokerages in the short term. So for the next one to two months, analysts might raise their ratings on brokerages.
Over the long term, trade wars could negatively impact investors’ views on equities, primarily due to the risks they carry. Trade wars could even slow down global trade activities and economic growth and disrupt investor confidence. In the long term, brokerages (VFH) could see a fall in analysts’ positive ratings.
Of the total analysts covering TD Ameritrade Holding (AMTD) in June, 31.5% recommended a “strong buy” for the stock. For Charles Schwab (SCHW), 40% of analysts suggested a “strong buy.” About 43.8% of analysts covering E*TRADE Financial (ETFC) gave the stock a “strong buy,” and 28.6% of analysts rating Interactive Brokers Group (IBKR) recommended a “strong buy.”