By Andrew Welsch

Morgan Stanley analyst Michael Cyprys upgraded shares of Charles Schwab to Overweight and downgraded Robinhood Markets' stock to Equal Weight in a sign of how tariff-related market turmoil is changing expectations for brokerage and wealth management companies.

Shares of Schwab and Robinhood rallied 5.9% and 6.6%, respectively, on Tuesday morning as the broader market rose. The S&P 500 was up 2.9%, and the Vanguard Financials ETF, which tracks a basket of financial stocks, jumped 4.6%. Schwab, Robinhood, and stock markets across the globe have been battered recently as investors have weighed the ramifications of President Donald Trump's tariffs.

The market's upheaval prompted Cyprys to shift his preferences among brokerage and wealth management stocks "towards names less levered to retail trading, and more geared to defensive and durable growth," according to his April 8 research note.

Current volatility and uncertainty may spur retail investors to disengage from markets for a prolonged period, he writes.

Cyprys sees Schwab as having a more defensible earnings profile and a brand that may do well amid a tough macro backdrop. Although perhaps best known for its retail brokerage service, Schwab also operates a large wealth management business for clients. It also serves thousands of independent financial advisors, who rely on Schwab for technology, asset management services, and safeguarding client assets. Schwab had more than $10 trillion in client assets as of the end of February.

Cyprys says Schwab has been able to generate revenue from moving clients' cash into sweep accounts (which pay little interest to clients but generate revenue for Schwab), and that strategy should provide earnings ballast in an inflationary environment. "Historically, we've seen periods of volatility and uncertainty translate into large influx of customer sweep cash balances, as retail de-risks, which can drive meaningful growth and upside for Schwab as it monetizes those assets," he writes.

Even though Cyprys upgraded the stock, he nonetheless lowered his price target for Schwab to $76 from $91, a 16% decrease. Shares of the brokerage firm were changing hands at $74.14 as of 11:15 a.m. on Tuesday.

For Robinhood shares, Cyprys slashed his price target to $40 from $90, a 56% decrease. Shares of the Menlo Park, Calif.-based company were trading at $37.74 as of 11:15 a.m. on Tuesday, well below Robinhood's 52-week high of $66.91.

"We have less confidence in forward estimates, specifically transaction-based revenues that are sensitive to retail investor sentiment that likely softens in the near/medium term, which appears to have started in March," he writes.

Robinhood's revenue mix skews to retail trading, Cyprys says, noting that transactional revenue contributed 66% of Robinhood's fourth-quarter revenues. Should transactional revenue decline, Robinhood may offset the hit with new and expanded products, he says. The company has been expanding its services, adding wealth management and banking. Executives have said those moves will help Robinhood win more wallet share with existing customers.

Cyprys maintained his Equal Weight ratings for shares of Ameriprise Financial and Raymond James Financial as well as his Overweight rating for LPL Financial.

Write to Andrew Welsch at andrew.welsch@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 08, 2025 12:14 ET (16:14 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.