Schwab Clients Slow Down Trading, Go to Cash

Features Reuters

U.S. brokerage giant Charles Schwab Corp said customer trading activity slowed substantially last month, a sign that retail investors may be losing confidence in the stock market.

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Revenue-producing trades, a measure of investor engagement, averaged 395,900 per day in May, down 23 percent from a year earlier and off 9 percent from April, Schwab said on Tuesday.

In addition to being Schwab's slowest trading month since October, May also saw a 27 percent drop in new brokerage accounts from the preceding month.

Founded as a discount brokerage, Schwab is one of the world's largest handlers of investments for individual investors. Its monthly results are watched closely as a barometer of small-investor enthusiasm for stocks.

On a positive note, investors poured more money into their Schwab accounts last month. Net new client assets rose by $9.4 billion, compared with outflows in April, and helped offset $18 billion of market losses.

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Total client assets slipped 1 percent from April to $1.67 trillion in May.

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Schwab's monthly activity report indicated investors may be heading to the sidelines. They steered $1.46 billion into money market funds in May while withdrawing nearly $1 billion from U.S. stock mutual funds.

It was the third straight month of withdrawals from large-company stock funds. Investors also pulled $16 million out of municipal bond funds, the seventh consecutive month of net withdrawals.

Rising money-market fund balances hurt Schwab two ways: Fees earned from more lucrative stock funds are reduced, and the company, like its rivals, has been waiving fees on money-market funds hit by ultra-low interest rates.