By Andrew Welsch

Shares of bank and brokerage stocks sold off sharply Monday morning as investors worried about a potential economic slowdown and the impact of tariffs on the economy.

Brokerage firm Robinhood Markets was among those hardest hit, with shares falling 14% on heavy trading volume: 24.7 million by 11 a.m. compared with a daily average of 28.7 million. The stock is up just 2.7% this year, reflecting a sharp reversal of fortunes. In mid-February, Robinhood's stock was up more than 75%.

Interactive Brokers' stock declined nearly 10% while shares of Charles Schwab, one of the nation's largest wealth management companies, fell 4.8%.

The KBW Nasdaq Bank Index was down 3% as of midmorning while the S&P 500 was down 2%. The index has fallen 6% this year. The Vanguard Financials ETF, which tracks a broad basket of bank, brokerage, insurance and other financial stocks, was down 1.7% Monday morning and down 1% this year.

"The market backdrop has soured abruptly," says Devin Ryan, head of financial technology research at Citizens. "There has been a change in momentum."

Robinhood slammed. Swings in Robinhood's stock tend to be more pronounced than those for other financial stocks (the stock's volume was magnitudes higher than that of Morgan Stanley at 2.83 million). Investors had been bullish on the stock because of Robinhood's fast growth as the company rolled out new services and products.

Ryan is still optimistic about Robinhood's growth opportunities, noting that it should benefit from a shift in cryptocurrency regulation. But investors, at least for the moment, appear to be reassessing risks and harvesting some of their gains. Even with this year's decline, Robinhood's is up 127% over the past 12 months.

Still, there has been a notable pessimistic shift among investors in financial shares. Earlier this year, bank and brokerage executives were more optimistic about the health of the U.S. consumer. Investors were upbeat about financial stocks, and viewed the sector as poised to benefit from President Donald Trump's deregulatory agenda and strong economic growth.

The latter is now in doubt because recent data has pointed toward a potential economic slowdown. Consumer sentiment, for instance, soured in February. Inflation has remained stubbornly high, which may hinder the Federal Reserve from cutting rates. And some analysts are asking whether a recession could be on the horizon.

An economic slowdown, or a recession, would hinder loan growth, handicap investment banking, and spur delinquencies. It would also leave investors with fewer dollars to deposit in their brokerage accounts. Paying one's rent usually takes precedence over buying stocks.

"Slowing economic growth and delayed capital allocation decision-making pose major headwinds for the financials sector, which, broadly speaking, is highly levered to the business cycle," says Suri Sharma, senior equity analyst at Morningstar.

Banks suffer. Monday morning's selloff also hit consumer banks such as Wells Fargo and JPMorgan, which were down 5.25% and 3.9%, respectively.

Sharma notes that banks generate a majority of their revenue via net interest spreads and slowing economic growth decreases demand for borrowing. "Additionally, the inflationary pressure that tariffs have on the price of goods may lead to more restrictive monetary policy, which would heighten deposit costs and further squeeze net interest margins," he says.

Shares of Morgan Stanley fell 5.2%. The company operates large wealth management and investment banking businesses. Investment bank and brokerage Stifel Financial tumbled 3.8%.

LPL Financial, the nation's largest independent broker-dealer, declined 6.9%.

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

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March 10, 2025 12:08 ET (16:08 GMT)

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