The Retail Investor Is Back (SCHW, IAI, AMTD)

The comeback of the retail investor is good for the stock market as well as the brokerage firms that cater to the demographic.

Earnings earlier on Tuesday came from Charles Schwab SCHW reiterated the premise that the brokers are taking advantage of the bull market in stocks and the return of the retail investor.

The company reported a gain of 17 percent in net income from a year earlier and reaffirmed its 2014 outlook. Core net asset growth surged as it saw it best summer quarter in the history of the company. If Schwab is cashing in on the trend, it should roll over to its peers in the industry.

The iShares Dow Jones U.S. Broker-Dealers Index ETF IAI is a basket of 23 stocks that are broker-dealers, online brokers, financial service firms, or exchanges. Schwab is the fourth largest holding in the ETF with an allocation of 6.4 percent. The other top holdings include Goldman Sachs GS, Morgan Stanley MS, and CME Group CME.

Because the ETF is a mix of the online brokerage firms such as SCHW and the large institutional companies like GS, the ETF is not a perfect play on the retail investor. However with competitors TD Ameritrade Holding AMTD and ETRADE Financial ETFC in the top ten holdings it does give investors adequate exposure to the retail investor trend.

The addition of the large financial institutions will add diversity to the ETF and if the trend continues it will likely lead to new highs for the stock market, which is good for all stocks in the allocation.

After rallying to a new five-year high in early trading on big volume, the ETF sold off to close the day lower by 0.2 percent. Once the black cloud that can be referred to as D.C. is removed it should help boost investor moral and allow the sector to begin moving on fundamentals.