NEW YORK (Reuters) - Birds still fly south in winter, but retail investors no longer plow into individual stocks when the market is on a tear.
That's one conclusion drawn from the less-than-bullish profit and trading activity reports at San Francisco-based Charles Schwab Corp. on Tuesday.
"We saw continued muted levels of trading," Chief Financial Officer Joe Martinetto said in an interview after Schwab reported a 7.4 percent dip in second-quarter earnings. "People are relatively content with the overall construction of their portfolios.
Trading at Schwab between April 1 and the end of June inched up just 1 percent from the first quarter and 6 percent from a year earlier. That was despite a 17.9 percent jump in the S&P 500 stock index and a 15.8 percent return on the Dow Jones industrial average since June 30, 2012.
Firms with strong roots in discount brokerage, such as Schwab and TD Ameritrade Holding Corp., are viewed as proxies for individual U.S. investors' confidence in the stock market. But brokerage executives say distrust of equity markets remains a strong behavioral legacy of the 2008 market collapse.
Individual stock trading volume on U.S. stock exchanges in June was up just 3 percent from a year earlier. However, while they shunned individual equities, Schwab investors did add money to stock mutual funds and exchange-traded funds during the month and the latest quarter.
Martinetto said he has seen nothing through the first half of July that changes his view of investors' timidity. "Over time, we do believe that people will agree that investing to help build companies is good for everybody in the nation," he said. "Trading now remains somewhat below our expectations."
The results from Schwab, the first of the big retail brokerages to issue quarterly earnings, could be a harbinger for TD Ameritrade, which reports on July 23, as well as for the brokerage units of big banks such as Morgan Stanley, Bank of America's Merrill Lynch and UBS AG's UBS Wealth Americas, which report in coming days.
What is particularly disconcerting about the lack of exuberance for stocks is that bonds increasingly appear to be risky alternatives. With the Federal Reserve widely expected to raise interest rates by year-end, retail brokerage executives have been all but shouting at clients to thin their holdings in bonds, whose prices plunge when rates rise.
"You are seeing the psychology of the market through fund flows," Martinetto said. "We had outflows in May in equity funds as the market experienced some turbulence. Some money moved back in June, but it came out of fixed-income."
Schwab clients pulled $5.2 million out of taxable bond funds and $1.2 million from tax-free bond funds in June, while pouring $850.2 million into small- and mid-cap stock funds and $213.1 million into large-cap stock funds.
For the first half of the year, Schwab's trading revenue shrank to $458 million, compared with $462 million in the first half of the relatively sluggish 2012 period. Overall, the firm's asset management and fund administration fees climbed 15 percent in the second quarter and the first half of the year from the corresponding 2012 periods.
(Reporting by Jed Horowitz; Editing by Lauren Young and Dan Grebler)
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