The consensus on Wall Street is that brokers will post small or modest earnings gains next year. While corporate merger activity is expected to keep generating fat fees for investment banks, the pace of growth in the economy is expected to slow. The threat of rising interest rates in the first half of the year is expected to keep the stock market under wraps.

"They are going to run out of rabbits to pull out of the bag," says David Hendler, an analyst with CreditSights.

Hendler says rising interest rates will put a further chill in the market for fixed-income trading and bond underwriting. He says investment firms may not be able to count on their proprietary bond trading desks to generate the kind of outsized revenue that they've consistently produced for the past two years.

"Lehman and Goldman all had their huge rallies. Bear had it last year," says Hendler. "Now it may be time to rotate into the guys who had more noise in 2005."

Hendler prefers Merrill Lynch, which is up 16% in 2005 but has underperformed many of its brokerage peers. He likes Merrill Lynch, in part, because "retail brokerage is picking up a head of steam."

If you liked this article you might like

SEC Charges Ex-CIBC Broker

SEC Charges Ex-CIBC Broker

Durus Manager Gets Hard Time

Durus Manager Gets Hard Time

Shift for SAC's Cohen

Shift for SAC's Cohen

New Frontier Holder Selling

New Frontier Holder Selling

PIPE Deal Shines Up Sun

PIPE Deal Shines Up Sun