Investors in US discount brokerage stocks applauded the upbeat US jobs report on Friday, sending shares of TD Ameritrade Holding Corp, Charles Schwab Corp and E*Trade Financial Corp soaring. Few stock sectors are as correlated to rate hikes as discount brokers because they hold huge amounts of customer cash that they invest at rates higher than they pay to the clients.
For more than seven years, as short-term interest rates lolled near zero, the companies have been telling investors their earnings potential would explode once rates rise. Shares of TD Ameritrade were up 4.4 percent to $38.24, Schwab climbed 4.5 percent to $31.57 and E*Trade added 2.4 percent at $27.63. Schwab is particularly sensitive to short-term rates because it has been waiving management fees on more than $165 billion that clients hold in its money-market funds to ensure they don't have negative returns. In 2014, the discount brokerage pioneer waived $751 million in the fees and $674 million the year before.
TD Ameritrade, which boasts more active traders than other discounters, also got a boost from the announcement on Friday that Apple Inc will replace AT&T Inc in the Dow Jones industrial average. Apple on most days is the stock most actively traded by TD Ameritrade clients, according to Chief Executive Officer Fred Tomczyk. Its inclusion in the Dow is expected to boost trading volume.
The employment report reinforced expectations the Federal Reserve will push ahead with a rate hike in June. Payroll data showed US companies added 295,000 jobs in February, well above forecasts for an increase of 240,000. It was the longest run of 200,000-plus increases since 1994. The unemployment rate dropped to a lower-than-expected 5.5 percent from 5.7 percent in January.
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