Oh Schoot

Schwab knocks its rivals shares by eliminating online trade commissions

Image source: Photo by Colin Ybarra and Shelby Kettrick @ShelbyShootsStuff; E*Trade; ImageFlow, Joe Seer, Bernad - Shutterstock

What's going on?

Schtock brokerage Charles Schwab schook up Wall Schtreet on Tueschday by announsching it’d eliminate online trading commischions – pusching rivals’ schares down.

What does this mean?

Brokerage fees have been falling for decades, and new entrants like Robinhood have eliminated them altogether in recent years. That’s put more pressure on old-school brokers to follow suit – and Schwab’s finally caved, ditching some commissions on US stocks, exchange-traded funds, and options.

Rivals E*TRADE and TD Ameritrade were blindsided by the move, and their investors – perhaps worried customers would leave for the cheaper Schwab – fled: their shares plummeted by 16% and 25% respectively. Investors in Schwab weren’t exactly happy about the decision either: its shares fell around 9%.

Why should I care?

For you personally: Money makes money.
Schwab can get away with this because most of its money comes from interest income – the money it makes from investing its customers’ cash. That means low interest rates have hit brokers hard: Schwab alone recently laid off 600 employees. So maybe don’t mistake this for a swerve toward philanthropy. Schwab’ll be hoping lots of new customers will give it more cash to invest – and more interest income.

Zooming out: Panic at the disco.
Investors didn’t just shy away from brokers’ shares on Tuesday: the overall US stock market fell as one reading of US manufacturing activity hit its lowest level since June 2009. The measure – which asks factories how busy they’ve been – came in well below expectations, hinting at a contraction in the sector. The US-China trade war was largely to blame: American manufacturers said they were exporting less for the third month in a row. Combined with plummeting car sales, this could signal an impending economic downturn. All eyes are now on Friday’s jobs data, which will show if wages are stagnating too.

Originally posted as part of the Finimize daily email.

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