Can Charles Schwab Recover After Hazel AI Tool Sparks Bloodbath?
Altruist’s financial planning product Hazel could be a game changer.
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Shares of financial services companies were crushed on Tuesday. The selloff was blamed on the emergence of an AI-powered wealth management product that could threaten traditional financial services business models.
Altruist, an AI-focused wealth management upstart, recently introduced Hazel, a tax planning product. Hazel provides interactive scenario modeling, designed to help clients create plans for retirement.
Brokers Get Bounced
Charles Schwab (SCHW) was thrown for a 7.5% loss, and other names in the financial planning arena also took a beating. Ameriprise Financial (AMP) fell by 6.25%, Raymond James Financial (RJF) lost 8.85%, and Stifel Financial (SF) declined by 3.85%.
My first reaction to Schwab’s selloff is to look for an entry point. After all, Tuesday's plunge came just one day after the financial services giant closed at an all-time high. Surely, Schwab’s fortunes hadn’t changed overnight.
Schwab fell from an all-time high (point A) to a six-week low in just one day. A late-day rebound failed to push shares of the Westlake, Texas-based broker back above its 50-day moving average (blue). Volume reached its highest level in a year (arrow).
The charts of competitors Raymond James Financial (left chart, below) and Ameriprise Financial (right chart, below) display similar characteristics:
One look at the giant red candles and volume spikes for both Schwab and its competitors tells me that institutions are aggressively selling these names. This is the only reason why I'm not buying Schwab at its current price.
What is it that institutions know about this new twist in financial planning? Is AI about to commodify the financial planning space, much in the way that online discount brokers upended retail stock trading 30 years ago?
Game Plan for Schwab
This doesn’t mean that companies like Schwab are helpless. I’m confident that Schwab will eventually buy or create its own AI-based financial planning software. What is concerning is the way an innovative product of this nature can reduce margins on a permanent basis.
On Tuesday, Schwab closed at $99.25. If the stock can fall a bit further, to its 200-day moving average (red), I’ll step in with a half-sized position.
Schwab’s 200-day MA is currently resting just above $94. If the stock continues to fall below that key indicator, the plan is to get out for a small loss. On the other hand, if Schwab subsequently climbs back above $100, I’ll add the second half of the position.
Bottom Line
Innovation threatens every industry at some point. That's when good companies adapt. I don’t expect Schwab or its competitors to simply surrender. Instead, I expect them to harness similar technology, as it eventually becomes mainstream.
At the time of publication, Ponsi had no positions in any securities mentioned.
