Although the popular trading platform had a robust start to the year, TD Ameritrade (NASDAQ:AMTD) stakeholders have not had much reason to smile since then. After February, TD Ameritrade stock entered into a decisively bearish trend channel. Shares became particularly volatile in August before picking back up this month.
Unfortunately, AMTD stock peaked around mid-September, and then mildly slipped. But on Thursday, shares simply collapsed, closing down 6.5% against the prior session. Moreover, volume hit 7.1 million shares, far larger than their average run rate. With the loss, AMTD is down more than 4% year-to-date.
Adding to the woes, some fundamental justification exists for the sharp decline. On the same day, AMTD competitor Interactive Brokers Group announced their new platform called IBKR Lite. Featuring commission-free, unlimited trades on American-listed stocks and exchange-traded funds, Lite is a direct attack on TD Ameritrade stock.
However, TD Ameritrade wasn’t the only victim on Thursday. Other trading platforms, including E*Trade Financial (NASDAQ:ETFC) and Charles Schwab (NYSE: SCHW) also dropped noticeably.
Logically, the resultant volatility in AMTD stock and the brokerage industry has a clear basis. On a macro level, the baby boomer generation is retiring en masse. In fact, every day, 10,000 boomers turn 65. Naturally, these folks don’t need to tie up their money in equities, which have higher risks than safe-haven assets.
Another problem for TD Ameritrade stock is that millennials have historically been reluctant to engage the equity markets. Nearly a third of millennials favor cash holdings, which does the company no good. With Lite offering commission-free services, it reduces an already unfavorable market even lower.
But before you hit the sell button on AMTD stock, here’s something to consider:
Lite Not Quite an Insurmountable Headwind
As with many things in life, the bear case for TD Ameritrade stock is only clear-cut on the surface. But drill a little deeper and the idea appears far riskier.
For one thing, it’s not inconceivable that millennials will either start investing or invest more aggressively. As people get older, certain realities become more evident: primarily, that no one lives forever and therefore, having a financial nest egg is vital.
Another factor bolstering millennial engagement of the markets is housing prices. In short, attainability has gotten out of control, especially in high-demand areas. Plus, mortgage lenders, having painfully learnt the lesson of last decade’s housing crisis, aren’t exactly motivated to lend to anyone but the strongest financial candidates.
Frankly, that leaves out a lot of millennials. But it also means the stock market is the most practical way for young people to grow their money. Indirectly, this is a big boost for AMTD stock.
Another possible tailwind specific to TD Ameritrade stock is the Lite platform itself. Here, we can rely on a commonly heard adage: if it’s too good to be true, it usually is.
Now, I’m not suggesting that Lite is deceptive about their commission-free, unlimited trades offer. I’m sure it works as well as advertised. But the important point to consider is that Interactive Brokers, while a fine trading platform, has a favored audience: advanced traders and market professionals.
Generally, that descriptor doesn’t fit the profile of the average millennial. That fact that a significant amount of young workers hold onto cash suggests fear of the markets.
On the other hand, TD Ameritrade, while more expensive (obviously) than Lite, has features like 24/7 customer service. That should make AMTD more appealing to millennials.
TD Ameritrade Stock May Enjoy a Sentiment Shift
Finally, I’d like to make one last point about millennials and investing. More recent data shows that millennials are starting to turn around to the stock market. Again, that’s not surprising: as you get older, you care more about the future.
Moreover, millennials tend to invest based on ethical principles or the products and services that matter to them. As society becomes more accommodative to the under-40 crowd, you can expect more opportunities in millennial-friendly investments: may I suggest these 30 marijuana stocks to buy?
All kidding aside, the loss in AMTD stock was very significant. However, I don’t think it’s the end of the world for them. Evidence shows that millennials have started to invest in the markets with increased vigor. Combined with TD Ameritrade’s beginner-friendly platform, shares should eventually recover.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
