Why Charles Schwab Stock Jumped in July

The first summer month was a hot one in several respects for Charles Schwab (NYSE: SCHW). Early in the month, the veteran brokerage and financial services provider reported that an internal trading indicator was doing extremely well, and toward the end, unveiled its latest quarterly earnings report.

The latter wasn't initially well received, but that sentiment turned bullish in the wake of several analyst price target increases. Ultimately, the stock increased in value over the month, with a gain of more than 14%.

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STAX success

Schwab is sufficiently large, well-capitalized, and authoritative to maintain its own stock index that tracks its many clients' trading activity. The monthly Schwab Trading Activity Index (STAX), modestly named after the company, was on fire going into July. It rose to more than 59 in June, setting a new multi-year high and topping May's 55.

If trading is brisk enough to set a new multi-year high, any way we slice it, the company is doing well. Although Schwab no longer charges commissions for buying and selling equities, increased trading activity translates into gains in fundamentals such as margin loan balances.

Sure enough, when Schwab released its second quarter earnings on July 21, it trumpeted new quarterly records for net revenue, net income under generally accepted accounting practices (GAAP), and core net new assets.

That new top-line high was $7.1 billion, up a very sturdy 21% year over year, thanks in no small part to a net interest margin (NIM) that expanded by 35 basis points to an even 3%.

Net income, both GAAP and non-GAAP (adjusted) zoomed 32% higher, with GAAP coming in at $2.80 billion and adjusted landing at $2.93 billion ($1.62 per share). On average, analysts were modeling net revenue of $6.85 billion and adjusted net income of $1.54 per share.

Better, Schwab raised its guidance for full-year revenue growth to 17.5% to 18% (from 14% to 15%).

It felt counterintuitive, then, for the stock to decline in the wake of that impressive quarter. At that point, though, shares of Schwab and other top financial companies were riding fairly high after passing the Federal Reserve's (Fed) annual stress tests in June. Satisfying quarterly results from the big four banks helped too, as did their relatively generous dividend raises.

The run-up in stock prices for many financials raised expectations, and some investors were surely aching for a serious blowout of a second quarter from Schwab.

Positive pundit pronouncements

Before long, they were reminded just how solid Schwab's performance was. Several analysts tracking the stock raised their price targets on the company's equity.

Morgan Stanley, for example, did so twice in July, once before earnings (to $133 per share from $125) and once after (to $136). Probably needless to say, prognosticator Michael Cyprys maintained his overweight (buy) recommendation across both moves.

Those occurred in the closing days of the month, giving Schwab stock enough time to recover from that brief post-earnings sell-off. They also served to -- rightfully, in my opinion -- point out just how effective and prosperous the company is in most aspects of its business.

Charles Schwab is an advertising partner of Motley Fool Money. Eric Volkman has positions in Charles Schwab. The Motley Fool recommends Charles Schwab and recommends the following options: short September 2026 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.