What to expect in 2018
In the second quarter, trade tensions between the United States and China grew after the Trump administration imposed more restrictions. It had a negative impact on the market as well as technology giants. Moving forward, if China retaliates, the markets could see volatility, which might help brokerages (VFH) in terms of trading revenue and client participation.
Overall, in the second quarter, the equity markets were mainly helped by first-quarter earnings and lower unemployment. Moving forward, if the markets see an upward momentum, the margin loan balances of brokerages such as Charles Schwab (SCHW), Interactive Brokers Group (IBKR), TD Ameritrade Holding (AMTD), and E*TRADE Financial (ETFC) could be positively impacted.
Net interest income in Q2 2018
Charles Schwab’s net interest income is largely influenced by interest-earning assets and interest rates. In the second quarter, the company is expected to report net interest income of $1.4 billion. The higher the interest-earning assets and rates, the higher the company’s net interest income. Even though faster interest rate hikes are expected in 2018, trade tensions might slow down the pace, which would impact brokerages’ net interest incomes.
Global trade tensions could restrict economic growth and bring instability in the global business environment. These tensions might also reduce investor confidence in equities, which could prompt them to sell their holdings.
In the next part of this series, we’ll take a look at Charles Schwab’s trading income.