Investors left early for summer vacation, sapping midyear earnings for Charles Schwab Corp

A sluggish economy, volatile markets and threats of government debt defaults worldwide have scared investors away from buying stocks, analysts said . That bodes ill for Schwab, TD Ameritrade and other so-called retail brokers that are reporting their quarterly earnings during the week beginning July 18.

We saw a much weaker quarter, said Joel Jeffrey, an analyst at Keefe, Bruyette & Woods. With the tough economic news, some retail investors moved to the sidelines.

The business of handling stock and bond trades began slowing in March after a robust start to the year, and events ranging from the Japanese tsunami to the European debt crisis and a lethargic U.S. economy have continued to plague the online brokerage firms and their full-service retail competitors.

The retail investor has one foot in the market and one foot out, TD Ameritrade Chief Executive Fred Tomczyk said. A lot of people are very hesitant and reticent right now.

The Omaha-based online broker is scheduled to report its quarterly earnings on Tuesday, one day after Schwab discloses its second-quarter results.

Summer is traditionally a slow season, but Raymond James analyst Patrick O'Shaughnessy estimates that June trading at the online brokers fell at a precipitously high double-digit rate from an already weak May.

Another indication of investor frustration was their pulling money from the stock mutual funds that the broker-dealers sell on their financial supermarket platforms. Stock funds, like stock transactions themselves, are more lucrative to broker-dealers than are short-term money-market investments and most fixed-income products.

Indeed, Schwab, TD Ameritrade and many fund companies have been waiving their fees on money market funds for more than a year because the near-zero interest rates being paid could result in negative returns if fees were charged. The fee waivers have cost broker-dealers hundreds of millions of dollars.

Analysts polled by Thomson Reuters I/B/E/S have been shaving their estimates for Schwab in recent weeks, with the mean estimate at 20 cents a share, up from 17 cents in the year-ago quarter. The consensus estimate for Ameritrade has been cut by about a penny to 29 cents recently, compared with 23 cents last year.

Full-service firms with large retail brokerage units such as Raymond James Financial and Stifel Financial Corp also are expected to beat last year's results but have been losing ground in recent weeks.

Per-share earnings estimates for Stifel have fallen about 12 percent since July 6 to 55 cents, compared with profit in the 2010 second quarter of 46 cents a share. The rapidly expanding St. Louis-based broker is expected to report its results on August 8.

Estimates for Raymond James have declined an average of 30 percent in the last month to 45 cents a share. The St. Petersburg, Florida-based firm, expected to report on Wednesday, earned 80 cents a share in the June 2010 period.

Shares of retail brokerage stocks have been falling in tandem with clients' withdrawal from the markets, with Schwab off about 12 percent this year, TD Ameritrade down more than 5 percent and Stifel and Raymond James about 20 percent and 11 percent respectively.

The outlook for a quick recovery after the traditional summer slowdown, meanwhile, is iffy. The retail recovery is already here, but it isn't a jet going straight up, said Brad Hintz, an analyst at Sanford Bernstein. It's an old-fashioned propeller plane struggling to gain altitude.

(Reporting by Joseph A. Giannone, editing by Jed Horowitz)