What I'm Watching With Charles Schwab (SCHW) To See If They Beat The Market

Charles Schwab (NYSE: SCHW), one of the largest financial services firms in the United States, is often considered a reliable blue chip stock. Over the past 12 months, its stock has risen 21%, outpacing the S&P 500's 18% gain. But will it stay ahead of the market over the next 12 months?

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How fast is Charles Schwab growing?

Charles Schwab is a brokerage, a bank, and an asset manager. It generates most of its profits by investing clients' cash balances in U.S. Treasuries, mortgage-backed securities, and other high-quality fixed-income investments. It also generates profits from its asset management fees, advisory fees, and selling its brokerage orders to high-frequency trading (HFT) firms.

Rising interest rates boost Schwab's net interest income from its cash sweep activities, mortgages, loans, and other credit products. However, higher rates can also reduce its trading volume and throttle the growth of its brokerage and wealth management segments.

At the end of 2025, Schwab served 46.5 million client accounts with $11.9 trillion in total assets. That's up from 33.2 million client accounts with $8.1 trillion in assets at the end of 2021.

Data source: Schwab.

In 2021, Schwab's growth accelerated as low interest rates, stimulus checks, social media buzz, and a fear of missing out drew more retail investors to the market. Its acquisition of TD Ameritrade, which closed in Oct. 2020, amplified those gains.

But in 2022 and 2023, the Fed's interest rate hikes throttled its trading activity as the costs of integrating TD Ameritrade squeezed its margins. But in 2024 and 2025, its growth accelerated again as the Fed cut interest rates, it generated synergies from its acquisition of TD Ameritrade, and it gained more registered investment advisors to expand its wealth management business.

Will Schwab continue to beat the S&P 500?

From 2025 to 2028, analysts expect Schwab's revenue and EPS to grow at CAGRs of 8% and 15%, respectively. Its stock still looks cheap at 17 times this year's earnings.

Assuming it matches those estimates and trades at a more generous 20 times earnings by the first quarter of 2027, its stock could rise nearly 40% to $130 within the next 12 months. But to achieve that growth, interest rates need to either hold steady or decline -- and that might not happen if the Middle East conflict and inflation drive the Fed to raise rates instead. While Schwab is still a reliable financial stock for long-term investors, I'd keep an eye on those recent macro challenges and their impact on interest rates to see if it can stay ahead of the market.

Charles Schwab is an advertising partner of Motley Fool Money. Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab and recommends the following options: short March 2026 $100 calls on Charles Schwab. The Motley Fool has a disclosure policy.