Banks earn money from lending and other financial services, while brokerages generate revenue from trading, customer cash, and fees. Both came under pressure on Sept. 22 as bond yields squeezed lending margins and a new Meta AI app spooked wealth-management investors.
The curve is doing the damage
The gap between 2-year and 10-year Treasury yields narrowed to 21 basis points, down from more than 70 before the US-Iran war began.
A flatter curve compresses net interest income, which is the difference between what a bank earns on loans and pays on deposits.
The spread between 5-year and 2-year yields sits at just 9 basis points, making an inversion a live possibility. When short rates rise above long rates, lending gets less profitable fast.
That curve hit its flattest level since March 2025 on Tuesday, having sat at 55.5 basis points on Aug. 18. Traders have been raising their bets on further Fed hikes.
A new AI agent threatens fees
Meta Platforms launched Muse, a personal AI agent that recently passed ChatGPT as the most downloaded free iPhone app.
It has already partnered with PayPal and fintech firm Plaid, with potential reach into payments, financial planning, and insurance.
The worry runs deeper than robo-advisers replacing humans. Agents that optimize portfolios continuously could drain the idle cash brokerages quietly earn interest on.
Brokerages fell harder than banks
Wealth-management stocks bore the brunt of the selloff as Meta's new AI app raised concerns about competition in financial advice. Charles Schwab, Ameriprise Financial, and Raymond James all fell, with LPL Financial taking the steepest hit as investors weighed the threat to traditional brokerage services.
Banks weren't spared either. JPMorgan Chase had its worst day since July, while Wells Fargo, Bank of America, and Citigroup also declined as rising bond yields pressured lending margins.
The Financial Select Sector SPDR ETF fell and is now below September highs. Robinhood, however, bucked the trend, with shares rising after the company launched AI agents in May that can trade and manage portfolios for users.
What the positioning says
Schwab options volume ran more than five times average, with nearly twice as many puts bought as calls. The most popular contract was a January 90-strike put.
Robinhood traders went the other way, buying twice as many calls as puts. More than 80% of the $95M in premium traded was tied to calls.
Schwab's exposure is structural, not just sentiment. Its reliance on low-yielding sweep cash puts it "squarely in the crosshairs," wrote Piper Sandler analyst Patrick Moley in April.
Incumbents are not standing still. Schwab Advisor Services is working with Anthropic on Claude for Financial Advisors, and Anthropic rolled out workflow tools connecting to Schwab and Vanguard platforms.
"If you run an ocean liner, you can't turn it around by tomorrow," said Alois Pirker of Pirker Partners, who advises wealth managers.
Bank fundamentals also look less bleak than the tape. Wells Fargo finance chief Mike Santomassimo said growth continues across cards and auto, though the rate may slow from the first half.
Bank of America CEO Brian Moynihan said third-quarter trading would be strong but roughly flat against last year.
Gabelli Funds portfolio manager Macrae Sykes called Tuesday another sell-without-regard reaction, and argued bank fundamentals remain good on a healthy economy and employment.
The near-term direction of the sector likely rests on the curve rather than the AI narrative. Technical support for sits near $55, with the next level at $53.25 alongside the 200-day moving average.
