Broker Industry: No One Trusts the Financial System
(By Rebecca Lipman)
Who trusts the financial system? According to a new poll, fewer than one in four Americans.
The quarterly Chicago Booth/Kellogg School Financial Trust Index measures trust in the areas of banks, the stock market, mutual funds and large corporations.
The survey showed that only 23% of those polled trust the country’s financial systems, down from an equally dismal 25% in June. (via Daily Finance)
Specifically, trust in banks has dropped from 39% in June to 33% in October. “Notably, people were much more inclined to trust local banks and credit unions: More than half of those surveyed said they still had faith in those institutions.”
Distrust in the stock market (16%) and large corporations (16%) remained stable from June to September. However, when asked the likelihood of the stock market dropping 30% in the next 12 months, 55% of respondents said it was likely, compared to 50% in June.
More findings: 60% of respondents were angry about the current financial system and economic climate. This is the highest level of anger measured since the earliest months of the financial crisis.
The findings reflect the sentiment reported in the news and “demonstrate the fragility of trust many Americans still have in the institutions where they invest their money,” says Luigi Zingales, co-author of the Financial Trust Index.
The rising trend of mistrust might mean hits for online brokerage firms who largely rely on trading fees for profit. If distrust in the market is rising, it follows that trading activity will decline.
To track that idea we list below some of the firms with exposure to this trend. Do you think these names will feel the effects of national distrust?
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1. TD AMERITRADE Holding Corporation (AMTD): Market cap of $9.05B. Provides securities brokerage services and technology-based financial services to retail investors, traders, and independent registered investment advisors (RIA) in the United States. Share price as of 10/21 at $16. The stock has recently rebounded, and is currently trading 5.02% above its SMA20 and 8.02% above its SMA50. However, the stock still trades -15.1% below its SMA200. The stock has had a good month, gaining 13.48%.
2. E*TRADE Financial Corporation (ETFC): Market cap of $2.85B. Provides online brokerage and related products and services primarily to individual retail investors in the United States. Share price as of 10/21 at $10.01. This is a risky stock that is significantly more volatile than the overall market (beta = 2.11). The stock has lost 28.7% over the last year.
3. Interactive Brokers Group, Inc. (IBKR): Market cap of $666.69M. Operates as an automated global electronic market maker and broker. Share price as of 10/21 at $14.63. Relatively low correlation to the market (beta = 0.76), which may be appealing to risk averse investors. The stock has lost 21.47% over the last year.
4. Piper Jaffray Companies (PJC): Market cap of $347.11M. Provides investment banking services, institutional sales, trading and research services, and asset management services worldwide. Share price as of 10/21 at $18.06. The stock is a short squeeze candidate, with a short float at 5.04% (equivalent to 5.53 days of average volume). The stock is currently stuck in a downtrend, trading -5.1% below its SMA20, -12.69% below its SMA50, and -42.8% below its SMA200. It's been a rough couple of days for the stock, losing 9.47% over the last week.
5. Charles Schwab Corp. (SCHW): Market cap of $14.83B. Provides securities brokerage, banking, and related financial services to individuals and institutional clients. Share price as of 10/21 at $12.26. Might be undervalued at current levels, with a PEG ratio at 0.9, and P/FCF ratio at 12.45. The stock has had a good month, gaining 11.15%.