According to Bank of America, it’s time to move away from interest rate-sensitive brokerages like Charles Schwab. Analyst Craig Siegenthaler twice downgraded the stock to underperform from buy and cut his price target, saying client cash sorting will remain elevated in the first half of this year. Sorting client cash means that clients move cash from lower-yielding bank deposits to higher-yielding alternatives such as money market funds. “This change is driven by our view that (1) client cash sorting will continue at an increased pace in 1H23 (pressure on liquidity, interest-bearing assets and bank deposit account [BDA] levels) and (2) the Fed ends its rate hike cycle this summer, removing a strong driver of short-term earnings (while the opportunity to reinvest the securities portfolio remains),” Siegenthaler wrote Thursday. Charles Schwab outperformed last year, gaining 0.1%, and is “probably the biggest beneficiary of higher interest rates across diversified financial companies,” the analyst said. Regardless, the analyst expects Charles Schwab’s sales and profit growth to slow this year due to its tight balance sheet. Analyst noted that client cash sorting surged Q4 2022 is expected to remain elevated through the first half of 2023 before slowing and closing by the end of this year Analyst price target of $75, down from $92 previously, means shares could fall another 7% or so from Wednesday Stocks fell 2% in premarket Thursday — CNBC’s Michael Bloom contributed to this report.
