Charles Schwab's Resilience Amid Moderation: A Bullish Case for Long-Term Growth

June 19, 2025

Amid the recent volatility of May 2025, driven by tariff-induced inflation and fiscal uncertainty, Charles Schwab Corporation (SCHW) has emerged as a rare bright spot in financial services. The company's first-quarter results underscore its ability to navigate turbulence while executing on a strategy that positions it for sustained growth. Let's dissect the data to understand why SCHW remains a compelling Buy.

Q1 2025: A Masterclass in Resilience

Schwab's Q1 performance was nothing short of impressive, with metrics that defy the notion of a “slowdown.” Revenue surged 18% year-over-year to $5.6 billion, fueled by strong net interest income (+21% to $2.7 billion) and asset management fees (+14% to $1.5 billion). Net income rose 40% to $1.9 billion, with adjusted EPS of $1.04 exceeding estimates.

The crown jewel is Schwab's client growth. Total client assets hit $9.93 trillion, up 9% year-over-year, with $138 billion in core net new assets—a 44% jump. New brokerage accounts rose 8% to 1.2 million, and retail trading activity hit a record 7.4 million daily trades (+24% YoY). Even in April's volatile markets, Schwab saw historic trading volumes, including two all-time highs of 14 million trades in a single day.

Strategic Initiatives: Why Schwab's Edge is Unmatched

Schwab's success isn't accidental. Its diversified revenue streams, operational efficiency, and focus on innovation create a moat against industry headwinds:

1. Omnichannel Dominance

Schwab's hybrid model—combining digital-first convenience with select physical branches—has deepened client engagement. For example:
- Digital lending: 95% of loans originated digitally, with a 15% year-over-year growth to $47.1 billion in total lending.
- AI tools: The Schwab Knowledge Assistant and Intelligent Assistant enhance client support, reducing service costs while maintaining satisfaction scores (e.g., 93% “easy” score for retail clients).

2. Client Retention and Growth

Schwab's TOA ratio of 1.5 (assets attracted from competitors) highlights its ability to win market share. Managed investing solutions saw record net inflows, including Schwab Wealth Advisory and Personalized Indexing. Meanwhile, banking accounts grew 9% to 2.05 million, expanding its footprint beyond brokerage.

3. Capital Efficiency

Schwab reduced high-cost bank supplemental funding by $11.8 billion in Q1, slashing the total to $38.1 billion—a 60% decline from peak levels. This has improved its net interest margin (NIM) to 2.55%, a key driver of profitability.

Analyst Consensus: A Buying Opportunity in a Volatile Market

Schwab's mid-year outlook acknowledges risks like tariffs and Fed rate cuts but emphasizes its resilience:
- Diversification: Schwab's revenue mix (trading, banking, advisory, and asset management) insulates it from single-sector downturns.
- Valuation: At 1.3x book value, SCHW trades at a discount to peers like Fidelity and Vanguard, despite its superior growth metrics.
- Shareholder Returns: The dividend hike (+8%) and $1.5 billion buyback in Q1 signal confidence.

Addressing the May Slowdown: Why It's Overblown

Critics point to May's market volatility as a test, but Schwab's data tells a different story:
- Client Engagement: Record log-ins (500 million in Q1) and trading volumes suggest retail investors are doubling down, not fleeing.
- Margin Balances: Stable at $83.6 billion, indicating disciplined risk-taking by clients.
- Cost Discipline: Adjusted expenses rose just 6% sequentially, with cost-per-account down over 20% in a decade.

Schwab's leadership also sees opportunities in the slowdown:
- International Diversification: With U.S. stocks overvalued, Schwab's global platform (e.g., managed investing solutions) positions it to capture outperformance in non-U.S. markets.
- Fixed Income: A focus on shorter-duration, high-quality bonds aligns with its conservative risk management.

Investment Thesis: A Buy for the Long Term

Schwab's fundamentals—strong AUM growth, diversified revenue, and disciplined capital management—make it a standout in a challenging environment. Key catalysts for upside include:
1. Fed Rate Cuts: A potential 1–2 rate reductions by year-end could boost bond portfolios and reduce borrowing costs.
2. Trade Policy Clarity: Even partial resolution of tariff disputes could ease inflationary pressures.
3. Market Share Gains: Schwab's omnichannel model and tech investments will likely continue stealing share from less agile competitors.

Risk Factors: Overreliance on U.S. markets, regulatory scrutiny, and tech execution risks. However, SCHW's balance sheet (Tier 1 leverage ratio of 9.9%) and cash reserves mitigate these concerns.

Final Analysis: Bullish on Schwab's Future

Despite May's volatility, Schwab's Q1 results and strategic moves confirm its status as a leader in financial services. With a fortress balance sheet, secular growth in retail investing, and a disciplined approach to capital allocation, SCHW is primed to deliver long-term gains.

Recommendation: Buy SCHW for a portfolio holding period of 1–3 years. Target price: $75–$80, reflecting 1.5x book value and its leadership position.

Stay tuned for updates as Schwab's July business meeting provides further clarity on its 2025 outlook.