2 Financial Stocks to Buy in a Bear Market

Robinhood and Interactive Brokers are highlighted as fintech winners entering 2026 after strong 2025 momentum: Robinhood nearly tripled in 2025, doubled revenue year-over-year in Q3 with its crypto business up >300% YoY and saw prediction-market contract trades jump from 2.3 billion in Q3 to 2.5 billion in October. Interactive Brokers reported a 67% YoY increase in stock trading volume, revenue up 23% YoY, net interest income (≈two-thirds of sales) up 21% YoY, customer margin loans at $77.3 billion (+39% YoY) and 4.13 million accounts (+32% YoY), while trading at a ~26x forward P/E — signaling mix of elevated growth and attractive valuation that could drive investor interest.

Analysis

Market structure: Rapid retail activity (HOOD: 2.5bn contract trades in Oct) and rising margin debt (IBKR customer margin loans $77.3bn, +39% YoY) favor execution-driven brokerages, derivatives venues, and custody/clearing providers while pressuring low-touch, high-cost legacy intermediaries. Robinhood’s crypto and prediction-market growth reconfigures fee pools toward high-frequency contract fees and native custody revenue; Interactive Brokers wins on margin rate pricing and scale, compressing pricing power for mid-tier brokers. Higher leverage increases market sensitivity to liquidity shocks—options/IV should stay elevated in drawdowns, and fixed-income spreads may widen if forced deleveraging occurs.

Risk assessment: Tail risks include swift regulatory action on prediction markets/crypto (SEC/FTC or state-level bans) and a market correction that triggers >10% margin loan unwind in a quarter, causing outsized revenue hit and reputational damage from outages. Immediate (days): trading-volume volatility and outage risk; short-term (1–3 months): quarterly earnings sensitivity to contract volume and net interest income; long-term (quarters–years): retention/ARPU and regulatory regime for crypto/prediction products. Hidden dependencies include crypto price cycles, prime-broker liquidity, and custody insurance limits that magnify second-order credit risk.

Trade implications: Favor selective long exposure to IBKR for quality cash flow and cheap ~26x forward P/E—size initial 2–4% position with 12-month target +25% and trim if customer margin loans fall >10% QoQ. For HOOD, prefer option-based exposure: buy a 9–12 month call spread to capture upside from prediction/crypto momentum while capping downside; avoid full-sized long equity at current froth unless volume metrics (monthly contract trades >2.5bn) persist for two consecutive months. Rotate overweight to fintech/payments (+3–5% relative) and reduce legacy broker/bank beta; hedge portfolio gamma with short-dated index puts if market breadth narrows.

Contrarian angles: Consensus underestimates regulatory friction; rapid growth in betting-like prediction markets is a high-probability regulatory magnet—if enforcement occurs, rerate could be 30–50% for HOOD. Conversely, IBKR’s trade-share gains and low-cost margin offering look underpriced vs. growth peers—mispricing persists because investors over-discount steady NII. Historical parallel: 2017 crypto-driven exchange booms then swift drawdowns—this cycle differs only if firms demonstrate diversified non-crypto revenue and robust clearing relationships. An unintended consequence: accelerated growth may force aggressive capital spending and raise operational failure risk, creating short windows to attack stock on bad headlines.

Key Decisions for Investors

• Establish a 2–4% long position in IBKR (Interactive Brokers) within 2 weeks; target +25% over 12 months, set a protective trim if customer margin loans decline >10% QoQ or revenue growth falls below 10% YoY on the next two quarters.
• Take option exposure to HOOD via a 9–12 month bull call spread sized to 1–2% notional (e.g., buy one mid-ITM call, sell higher strike to finance) to capture prediction-market upside while limiting downside; close if monthly contract trades drop below 2.0bn for two consecutive months or if SEC/State subpoenas are announced.
• Implement a pair trade: long 2% IBKR vs short 1.5% NDAQ (or another legacy exchange/broker) to express share-grabbing and margin-rate advantage; rebalance if IBKR/NDAQ spread narrows by >30% from entry.
• Overweight fintech/payment processors by +3–5% relative to benchmark (reduce legacy bank exposure by same amount); hedge macro tail risk by buying 1–3% notional of short-dated S&P 500 put spreads (30–60 day) if market breadth drops below 40% advancing issues on any trading day.
• Monitor three near-term triggers before scaling: (1) monthly prediction/contract trade volumes for HOOD >2.5bn for two consecutive months, (2) IBKR customer margin loans exceeding $80bn or growing >10% QoQ, and (3) any regulatory actions (SEC/State) within 30–90 days; if triggers fail, reduce equity exposure by 50% and move to option-based hedges.