Brokerage Stocks Strong, But For How Long?

The New York Stock Exchange released second-quarter 2006 earnings data showing significant aggregate increases in revenues and profits for member firms today. But is the party winding down for brokerage firms?

The New York Stock Exchange released second-quarter 2006 earnings data showing significant aggregate increases in revenues and profits for member firms today. But is the party winding down for brokerage firms?

The NYSE earnings data (see release) shows second-quarter 2006 revenues of $78.6 billion, up 47 percent from $53.3 billion in the second-quarter 2005. Additionally, after-tax profits were $2.95 billion, up 160 percent from $1.1 billion at the same time last year. (Note the pain being suffered by specialist firms.)

Member firms like Merrill Lynch, Morgan Stanley and Citigroup have seen the price of their stock rise significantly as all important business lines have done well in the last four years. But as Barron’s writes ( see article, subscription required) in a recent article, the cycle is likely at an end. As the Fed tightens monetary policy, housing slumps and the potential for dips in the current stock market rally and the big businesses of private equity and hedge fund services loom, the lights could soon go out on the party. Or so says the weekly.
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