Charles Schwab 2026 Outlook: Why Schwab Stock May Outperform Tech in the "Great Rotation"

TradingKey - Charles Schwab ( NYSE: SCHW) is one of the largest securities and wealth management firms in the U.S. and is currently expanding its operations into the private equity market. Should one buy Charles Schwab now? Financial stocks have generally underperformed over the past year, lagging the broader market, but major Wall Street firms widely believe that the economic environment in 2026 will be favorable for financial stocks and other cyclical sectors. Given this rationale, investors might consider adding Charles Schwab to their 2026 portfolio.

What is Charles Schwab?

The Charles Schwab Corporation (NYSE: SCHW) is an American multinational financial services company. Its total asset size has consistently ranked among the top ten commercial banks in the U.S., and it is an undisputed "dominant player" in the wealth management sector.

Core Scale and Industry Position

The firm's total client assets under advisement (AUA) are nearly $12 trillion (as of the end of 2025). As a "rule-setter" in the wealth management industry, Charles Schwab was among the first to introduce commission-free trading model and the independent investment advisor (RIA) model among banks, and has now become the preferred custodian bank for independent investment advisors in the U.S.

Diversified Business Portfolio

The firm primarily provides comprehensive financial services to individual investors and independent investment advisors, including banking and lending services, wealth management and advisory, and asset management. In November 2025, Charles Schwab announced its acquisition of the private equity trading platform Forge Global, and is expected to expand its business into the more profitable private equity market.

Unique Profit Model

Charles Schwab's revenue primarily relies on net interest income and asset management fees. The former typically accounts for over half, making it the firm's primary revenue source and the core of its profit model.

Charles Schwab converts clients' substantial "idle" cash used for stock trading into low-cost deposits and invests them in highly secure assets like U.S. Treasury bonds, thereby earning more substantial net interest income than the traditional loan-deposit spread model. This portion of revenue is more sensitive to the interest rate environment.

Furthermore, leveraging its extensive scale of assets under management, the firm generates continuous and stable management fee income.

In summary, Charles Schwab possesses both the asset scale of a traditional bank and the characteristics of a growth stock
involving a more proactive approach to profitability and more aggressive market expansion. This positioning makes Charles Schwab an excellent candidate for those seeking "stability + growth" among financial stock investors.

The Growth Strategy of Charles Schwab

Buying Forge Global: Expanding into the Private Equity Market

In November, Charles Schwab agreed to acquire private equity trading platform Forge Global in an all-cash transaction. The deal has received unanimous approval from both companies' boards of directors and is expected to close in the first half of 2026, though it still requires regulatory and shareholder approvals.

Public information shows that Charles Schwab will acquire the company at a price of up to $45 per share, valuing the company at up to $600 million, which represents a premium over the stock's closing price of over 70%, underscoring Charles Schwab's determination to penetrate the private markets. Just one week before Charles Schwab announced the acquisition, rival Morgan Stanley announced the acquisition of another private equity trading platform, EquityZen. Schwab's follow-up move is seen as a defensive counter-response.

It is widely believed in the market that Charles Schwab's acquisition aims to expand its business footprint by entering the private equity trading sector, thereby securing additional growth opportunities, and also to meet the demands of high-net-worth clients, and enhance client retention.

Furthermore, Charles Schwab stated that this acquisition aims to promote the 'democratization' of private equity investing, providing clients easier and more transparent access to private market liquidity.

As an increasing number of high-growth companies (such as Elon Musk's SpaceX) choose to delay their IPOs and remain private for extended periods, a significant portion of wealth-creation opportunities remains locked up before an IPO, accessible only to a select few. This trend has made the private equity market increasingly attractive.

However, traditional private equity transactions impose information and capital barriers for ordinary investors, typically requiring an individual investor to have an annual income exceeding $200,000 or a net worth over $1 million. Charles Schwab, on the other hand, aims to lower these barriers. According to the company's press release, Charles Schwab will leverage the scale of its 46 million client accounts to lower investment thresholds through products such as Interval Funds.

This aligns with the firm's longstanding practice of disrupting the financial industry. With this business expansion, Charles Schwab is also poised to become a pioneer in new private transaction models, potentially holding the same groundbreaking significance as its previous promotion of the zero-commission model.

Naturally, capital markets will not interpret this as simple idealism. Whether it is to enhance client retention among high-net-worth individuals, expand the scope of private equity investors, or open up new commission growth avenues, Charles Schwab's move is clearly more beneficial than detrimental, solidifying its competitive edge against other major banks.

Acquiring TD Ameritrade

In October, Charles Schwab released its Q3 2025 financial report, with several key metrics reaching record highs. In addition to a bullish market attracting a large number of new investors, another significant reason is the firm's acquisition of TD Ameritrade finally yielded explosive results in 2025.

Key metrics for Charles Schwab in Q3, including net revenue, net income, and adjusted earnings per share, all reached historical highs. Total client assets, after reaching a record peak of $11.59 trillion reported in October, further climbed to $11.83 trillion in November. Additionally, core net new assets, average daily trades, and new brokerage accounts all achieved their best historical performance.

Charles Schwab completed its acquisition of its largest competitor, TD Ameritrade, in 2020, merging two of the largest discount brokerages in the U.S. Following the acquisition, Charles Schwab's client asset base immediately surged by trillions of dollars, currently reaching $12 trillion. Furthermore, Charles Schwab gained access to the market's most advanced derivatives trading tools, namely TD Ameritrade's thinkorswim platform. This platform has brought Charles Schwab the impressive achievement of over one million new accounts opened for four consecutive quarters in 2025. . This remarkable accomplishment is not just about the surge in user volume; more significantly, it has attracted a massive number of professional-grade high-frequency traders, achieving a significant leap towards the high-net-worth client segment.

How Schwab Stock Performs During Economic Cycles

As a financial stock, Charles Schwab's overall trend, like other cyclical stocks, is pro-cyclical. subject to change. However, due to its stronger growth potential, it exhibits pro-cyclicality with higher volatility characteristics, distinguishing it from traditional utility or consumer staple stocks.

Economic Expansion Phase

During this period, the Federal Reserve maintains low interest rates or gradually raises them; as market confidence recovers, new account openings and trading volumes increase, and a rising stock market boosts clients' net asset values, the firm's trading revenue and asset management fees both rise.

In the mid-to-late stage of economic expansion, the Federal Reserve enters a sustained rate-hiking cycle to curb inflation, this is Charles Schwab's most profitable phase (provided an economic recession does not occur). The firm holds substantial idle cash in client accounts, which can be converted into low-cost deposits used to invest in assets such as Treasury bonds, whose yields are higher due to rate hikes; thus, the net interest margin (NIM) expands rapidly, driving significant revenue growth.

In short, in the early stage of economic expansion, Charles Schwab profits from increased market activity, while in the mid-to-late stage, it profits from expanding net interest margins.

Economic Recession Phase

However, when interest rates remain high for an extended period and recessionary expectations rise, the stock typically undergoes a correction. This is because during this period, clients tend to withdraw idle cash (which earns no or low interest) from their accounts, forcing Charles Schwab to attract clients with higher interest rates and finance at higher costs, leading to a narrowing of its net interest margin.

When the economy enters a recession, or even experiences negative growth, the stock price typically plummets with the broader market primarily due to market panic. Furthermore, financial stock prices usually bottom out faster as their operations are most closely correlated with capital markets and most sensitive to economic policies; thus, all negative news stemming from the economic environment is first priced in by financial stocks. However, during this period of intense volatility, their trading volumes tend to increase, generating higher trading revenue, which can offset asset depreciation.

As an economic recession nears its end, financial stocks like Charles Schwab typically rebound the fastest. This is because during a recession, these financial giants, leveraging their strong balance sheets, make "bottom-fishing" acquisitions of undervalued assets, anticipating opportunities in the next cycle.

Should investors add Charles Schwab to their 2026 portfolio?

In 2026, the central theme for the U.S. stock market will be "The Great Rotation," with capital shifting from overvalued AI stocks to cyclical stocks that were undervalued this year. Charles Schwab is poised to be one of the primary beneficiaries of this rotation.

Charles Schwab Will Benefit from 2026 Market Recovery and Sector Rotation

As 2026 approaches, research reports released by major Wall Street investment banks indicate their continued confidence in the outlook for U.S. equities, With the average forecast for the S&P 500 reaching 7,500 points, and some projections as high as 8,000 points. Furthermore, Wall Street observers note that a capital rotation in the U.S. stock market has quietly commenced, Suggesting that previously underperforming cyclical stocks may embark on a new rally cycle.

This projection is not without merit. Since the significant U.S. stock market correction on November 20th, small-cap stocks have substantially outperformed the MAG7. Concurrently, the S&P 500 Equal Weight Index, which provides a broader representation of market performance, has also outperformed its market-capitalization-weighted counterpart. In the Equal Weight Index, all 500 constituent stocks are assigned the same weighting, irrespective of their market size. These indicators collectively suggest that, Capital is beginning to shift from the MAG7 stocks to other equities. This phenomenon is termed "The Great Rotation."

Financial and banking stocks, exemplified by Charles Schwab, are poised to benefit for several reasons:

The U.S. equity rotation will "reinvigorate" capital flows. As capital flows into a broader array of sectors, transaction frequency will increase, leading to higher turnover rates. Consequently, capital will move in and out of Charles Schwab's "Cash Sweep" accounts more frequently and in greater overall volumes, thereby enabling Charles Schwab to boost revenue through expanded interest rate spreads.

The U.S. equity rotation cycle is not an isolated phenomenon; it typically coincides with an overall warming of the economic environment. and is thus initiated. Wall Street broadly anticipates that U.S. GDP will maintain robust growth in 2026, With Goldman Sachs, for example, forecasting a growth rate of 2.5%. An economic recovery primarily benefits the real economy; as confidence among businesses strengthens, both corporate and individual loan demand will increase significantly, which will undoubtedly enhance banks' interest income. The market generally expects the Federal Reserve to continue cutting interest rates in 2026. As the interest rate environment remains accommodative, the cost of retaining deposits for banks such as Charles Schwab will decline, leading to a recovery in net interest income will rebound.

Additionally, non-interest income is also projected to increase. The U.S. equity rotation will coincide with a recovery in corporate mergers and acquisitions (M&A) and the IPO market, leading to higher fee and commission income for banks engaged in advisory and trading services. Furthermore, as capital diversifies into a broader spectrum of U.S. equity market sectors, asset management fees generated by high-net-worth clients will also grow.

From a policy standpoint, the market currently anticipates a further easing of financial regulations in 2026. This would directly reduce banks' compliance costs and boost their distributable profits.

Strong Fundamentals: Why Charles Schwab Is Built to Last

As one of the largest securities and wealth management firms in the U.S., Charles Schwab not only navigated the Federal Reserve's aggressive rate-hiking cycle from 2022-2023 but also fully absorbed its negative impacts, progressively restoring profitability throughout 2024-2025 and ultimately achieving record earnings in Q3 2025. While the company is classified as a cyclical stock, its fundamental performance exhibits a through-cycle growth capability and resilience that significantly surpasses its competitors.

This is primarily attributable to the company's diversified business operations and its proactive, forward-thinking expansion strategy, which collectively ensure Charles Schwab's stable revenue streams and exceptional growth potential.

As previously stated, Charles Schwab's revenue is primarily derived from two sources: net interest income (NII), which accounts for over 50% of total revenue and contributes substantially during robust economic periods, and asset management fees, which maintain a solid position due to Charles Schwab's continually expanding client base. Furthermore, Charles Schwab generates income from trading activities. While equity trades are commission-free, derivative trades are still subject to fees, and institutional investors incur securities lending fees when borrowing shares for short-selling purposes.

Valuation Advantage: Why Schwab Stock Is a "Value Play" in 2026

In 2025, the U.S. equity market witnessed an AI boom, with AI and technology stocks spearheading gains; however, Charles Schwab was not a primary beneficiary. From a valuation perspective, most technology stocks exhibit overheating risks, whereas Charles Schwab currently trades at a mere 17 times earnings, which is slightly below the industry average and substantially lower than technology stocks, positioning it as a valuation 'sweet spot' in the current U.S. equity market. Wall Street broadly anticipates stronger performance from cyclical stocks in 2026, rendering Charles Schwab's current valuation highly appealing.

The Dual Nature of Charles Schwab: A Hybrid of Banking Stability and Growth Potential

Compared to conventional bank stocks, Charles Schwab exhibits more characteristics of a growth stock, primarily owing to its successful proactive strategic expansion and business development initiatives.

In recent years, Charles Schwab's continuous business expansion has served as a key growth engine, most notably through its acquisition of TD Ameritrade. This transaction provided Charles Schwab with the thinkorswim platform, a powerful derivatives trading tool, along with its extensive base of professional and high-frequency users. It also broadened the firm's assets under management and the number of brokerage accounts, thereby contributing sustainable earnings.

The recent acquisition of Forge Global is anticipated to provide Charles Schwab with another robust growth catalyst. This strategic move will propel Charles Schwab into the multi-trillion-dollar private equity secondary market, further expanding its user base and increasing its asset scale.

Summary

Charles Schwab is the largest securities and wealth management firm in the United States. As a cyclical stock, it is projected to achieve significant growth in the upcoming year 2026. However, what makes this stock unique is its slightly higher growth potential compared to traditional bank stocks. Therefore, it is poised for greater gains than its banking counterparts, which is why investors are buying in.

FAQ

Who Should Invest in Charles Schwab (SCHW) Stock?

1. Investors bullish on the 2026 U.S. economic outlook.
2. Conservative investors seeking steady growth with lower risk tolerance.
3. Financial sector enthusiasts looking for higher potential returns than traditional banks.
4. Investors with high tech exposure looking to diversify and hedge their portfolios.

How to Allocate Schwab Stock in Your 2026 Portfolio?

• As a Core Holding: Consider Charles Schwab as a mid-to-high weight "anchor" in your portfolio to capture the gains from sector rotation while mitigating cyclical risks.
• The "Rotation" Strategy: If you bet on the "Great Rotation," pair Schwab with other cyclical sectors like Industrials and Energy.
• The "Hedge" Strategy: If you remain heavy on Tech/AI, use Schwab Stock as a strategic hedge. Its gains during value-driven shifts can offset potential pullbacks in high-valuation tech stocks.