Charles Schwab (NYSE:SCHW), the San Francisco–based bank and brokerage firm, saw its stock drop 9.7% from $28.02 to $25.31, for a loss of 30 basis points. The stock slid because investors pushed back their expectations for a rise in interest rates. At the beginning of the quarter, the market assigned a less than 50% probability that the Fed Funds rate would remain unchanged in the 0.25%-0.50% range by the end of 2016. In late June (on the heels of the Brexit news), this probability shot up to almost 90%. This matters for Schwab, because low rates crimp the company’s ability to profit from its bank assets and money market funds. We’re holding our Schwab position, despite this expected delay in an interest rate hike, because we think the company’s long-term prospects are terrific.
From Jerome Dodson (Trades, Portfolio)'s Parnassus Fund second quarter 2016 commentary.
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