Cyclicals Drag S&P 500 Lower; Microsoft, Alphabet Keep Nasdaq Flat

Microsoft Corp gained 4.21% to close at a record high after forecasting a strong end to the calendar year, fueled in part by its booming cloud business. Alphabet Inc jumped 4.96% after reporting a record quarterly profit on a surge in ad sales.

The gains in the two stocks accounted for nearly 90 points to the upside in the tech-heavy Nasdaq while Microsoft was the biggest boost to the Dow Industrials, S&P 500 and Nasdaq.

A pullback in longer-term U.S. Treasury bond yields and a flattening of the yield curve also helped support growth names such as those in consumer discretionary and communications services, which were the only advancing S&P sectors on the day.

The benchmark 10-year U.S. Treasury yield declined for a fourth straight day, dropping more than 6 basis points to put it on track for its biggest one-day decline since Aug. 13.

“The growthy names will get a boost not just from some of the earnings stuff but because interest rates are lower,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors in Hunt Valley, Maryland.

“Interest rates are temporarily lower because of the fact that there is some uncertainty from the tax perspective and what that might do. We do know the Fed is going to taper, that has pretty much been priced in but now you have a lot of talk about what the future of the Federal Reserve may look like.”

The Dow Jones Industrial Average fell 266.19 points, or 0.74%, to 35,490.69, the S&P 500 lost 23.11 points, or 0.51%, to 4,551.68 and the Nasdaq Composite added 0.12 point, or unchanged, to 15,235.84.

In contrast, the flattening curve served to weaken financials, while a drop in crude prices after data on U.S. stockpiles pulled energy names lower, with both sectors suffering their biggest one-day percentage decline in five weeks. JP Morgan shares fell 2.08% and Exxon Mobil declined 2.60%.

A solid start to earnings season has helped push the S&P 500 and the Dow to all-time highs this week, as investor concerns over the ability of companies to navigate supply-chain bottlenecks, labor shortages and rising price pressures have been allayed for now. The Nasdaq sits less than 1% away from Sept. 7 closing record.

“While we are not out of the woods by any means, companies are adjusting quicker than we had anticipated,” said Horneman.

Profits for S&P 500 companies are expected to grow 37.6% year-on-year in the third quarter. Out of the 192 companies that have reported earnings, 82.8% have topped analyst expectations, according to Refinitiv IBES data.

The move into the growth names like technology stocks was also triggered after some U.S. Senate Democrats proposed taxing billionaires’ unrealized gains from their assets, while concerns around the timing of rate hikes resurfaced ahead of the Federal Reserve’s policy meeting next week.

The S&P 500 growth index climbed about 0.28% while its value counterpart fell 1.44%.

Robinhood Markets Inc tumbled 10.44% after the retail broker reported downbeat third-quarter revenue as trading levels declined for cryptocurrencies including dogecoin.

Declining issues outnumbered advancing ones on the NYSE by a 2.43-to-1 ratio; on Nasdaq, a 2.29-to-1 ratio favored decliners.

The S&P 500 posted 36 new 52-week highs and 5 new lows; the Nasdaq Composite recorded 72 new highs and 133 new lows.

Volume on U.S. exchanges was 11.74 billion shares, compared with the 10.43 billion average for the full session over the last 20 trading days.

For a look at all of today’s economic events, check out our economic calendar.


(Reporting by Chuck Mikolajczak in New York; Editing by Matthew Lewis)

Why Robinhood Stock Is Down By 10% Today

Robinhood Stock Falls As Q3 Results And Q4 Guidance Disappoint

Shares of Robinhood gained strong downside momentum after the company released its quarterly results.

Robinhood reported revenue of $365 million and GAAP loss of $2.06 per share, missing analyst estimates. Robinhood’s crypto trading revenue declined from $233 million in Q2 2021 to just $51 million in Q3 2021. Previously, most of the crypto trading revenue came from Dogecoin, whose popularity declined as competition from Shiba Inu increased.

This time, Robinhood did not provide information on Dogecoin-related revenue, but it is obvious that it suffered a serious pullback in the third quarter.

Robinhood stated that factors that impacted Q3 2021 results, like seasonal headwinds and lower retail trading activity, will also be in play in the fourth quarter of this year.

In this light, the company expects that its revenue will not exceed $325 million in Q4 2021. Robinhood also expects that the number of new funded accounts will be roughly in line with 660,000 that were opened in Q3 2021.

What’s Next For Robinhood Stock?

The third-quarter report highlighted Robinhood’s dependence on crypto-related revenue. As revenue from Dogecoin and other cryptocurrencies declined, the company’s results suffered a major setback.

The Q4 2021 guidance is disappointing as revenue will continue to fall. It remains to be seen whether Robinhood will be able to find something that will replace Dogecoin-related revenue in the upcoming quarters.

Not surprisingly, investors are worried about Robinhood’s ability to grow at a fast pace. While year-over-year comparisons look great as Robinhood was one of the main beneficiaries of retail trading boom, the company’s results do not look good on a quarter-over-quarter basis.

Analysts expect that the company will not be able to show profits in 2021 and 2022, so Robinhood’s valuation depends on its growth. It remains to be seen whether speculative traders will rush into Robinhood shares after the sell-off in a market that is so focused on growth.

For a look at all of today’s economic events, check out our economic calendar.

Robinhood’s 1m Strong Crypto Wallet Waiting List Points to Future Growth but SEC Uncertainty Lingers

There are few companies that have endured a more tumultuous year than Robinhood. In January, the online brokerage found itself at the center of the GameStop short squeeze in which a coordinated group of Reddit investors used the app to collectively buy the shares of the shorted stock to send its price soaring by some 4,000%.

The company’s controversial payment-for-order flow operating model has drawn criticism from Wall Street stalwart, Warren Buffett, while others have claimed that Robinhood has been promoting the gamification of trading.

Despite this, the fact that more than one million customers are now on the waiting list for Robinhood’s upcoming cryptocurrency wallet means that the company is continuing to thrive despite picking up a wide range of adversaries throughout the year.

“We’re very proud of our cryptocurrency platform and giving people more utility with the coins they have,” Robinhood CEO Vlad Tenev told CNBC.

“We rolled out our wallets waitlist. A lot of people have been asking for the ability to send and receive cryptocurrencies, transfer them to hardware wallets, transfer them onto the platform to consolidate and the crypto wallet’s waitlist is well over a million people now.”

Robinhood unveiled its cryptocurrency wallet in September 2021, announcing that the product would be tested based on user feedback in October before going public. Significantly, this move will enable users to manage their cryptocurrency investments through a dedicated wallet within the app.

Robinhood’s Rocky Start to Public Life

Despite Robinhood’s big announcement, the company’s stock appears to be struggling to gain traction after an impressive early rally following its arrival on the Nasdaq in late July 2021.

Robinhood’s stock initially soared following the company’s lowered IPO expectations but has struggled to keep up momentum and build on its early investor interest. However, it’s worth noting that Robinhood’s stock price is still trending higher than its initial public offering price.

Although late October brought the news that Robinhood’s cryptocurrency wallet had generated a seven-figure waiting list, we can see that the company’s stock has slumped further in the early stages of Q4. So, what’s holding Robinhood back? It’s likely that there are a few factors hindering the stock’s growth.

Significantly, retail traders – many of whom were heavily active during the Covid-19 lockdowns of 2020 and early 2021 – have returned to more active lives in going back into the office and socializing more frequently, rather than spending more hours of self-isolation studying stocks to buy and sell. This trend has been represented in data when considering that Robinhood’s app downloads have fallen by 78% in Q3 of 2021 in comparison to Q2, according to Apptopia.

It’s also important to acknowledge that the rise of fintech investing apps has encouraged large traditional financial players to enter the market. Notably, Revolut is gearing up to crack the American brokerage market with its own take on commission-free trading. Financial giants PayPal has also reportedly been exploring its stock investing options.

Robinhood stock also has a fairly limited float, which may be causing some pressure in the anticipation of when lockup expires and large shareholders decide to liquidate their shares. For instance, in August the company stated in their S-1 filing that some existing investors who bought into the companies via a private placement intend to sell almost 97.9 million shares over time.

Regulatory Fears Mount

One of the biggest challenges that Robinhood faces comes in the form of regulatory pressure. The US Securities and Exchange Commission has long been vocally critical of the popular payment-for-order flow business model that Robinhood operates on, and chairman Gary Gensler confirmed recently that a ban on the practice is “on the table.”

“Our markets have moved to zero commission, but it doesn’t mean it’s free,” Gensler told CNBC. “There’s still payment underneath these applications. And it doesn’t mean it’s always best execution.”

While other online brokerages like Schwab and E*Trade also benefit from payment-for-order flow, but, significantly, Robinhood is more dependent on the practice than its more-traditional counterparts.

However, the regulatory threats facing Robinhood have been shrugged off by Dan Gallagher, Robinhood’s chief legal advisor who was also the agency’s commissioner between 2011 and 2015. On the topic of a prospective ban, Gallagher explained that the SEC was “going to arrive at the conclusion that payment for order flow is undoubtedly an amazingly good thing for retail investors and they’re not going to ban it.”

Maxim Manturov, head of investment research at Freedom Finance Europe is similarly optimistic that the future for Robinhood’s stock is bright despite regulatory threats.

“Robinhood’s long-term prospects remain positive. Even with these short-term concerns, Robinhood is well placed to create long-term value,” Manturov said. “It is also possible that the current price already takes into account the news about the SEC attention.”

With this in mind, it may be the case that Robinhood can turn a corner on its dwindling recent stock prices and begin a period of accumulation once the threat of a payment-for-order flow ban alleviates.

Although the online brokerage market has become a congested space for fintechs, and the dangers of SEC scrutiny may seem ever-present, but Robinhood has grown into a market leader in its own right in terms of retail investing. It’s unlikely that the popular platform is going anywhere fast.

Stars Align for Dogecoin as Use Cases Gain Traction

Dogecoin investors have a way of getting what they want. Most recently, they have convinced AMC Entertainment to add support for Dogecoin as a payment method. In addition, trading app Robinhood is adding cryptocurrency wallets for the coins it supports, including Dogecoin, which will make it easier for users to make purchases.

The stronger the use cases for Dogecoin, the more demand there is likely to be for the meme-coin. The Dogecoin price is up 6% in the last 24 hours but has lost 10% over the past week. Dogecoin is currently the No. 10 cryptocurrency with a market cap of $29 billion. The Doge price is hovering at $0.22, and Doge bulls are looking to see it reclaim the $0.30 level next.

AMC Bump

AMC Entertainment CEO Adam Aron revealed on Twitter that the movie chain is clearing a path to accept Dogecoin. He made the decision on the heels of a Twitter survey in which he asked followers whether or not AMC should add the meme coin to its list of supported cryptocurrencies.

Aron was impressed by the results of the survey, saying it was his “highest ever read tweet” by a long shot. He even got the attention of Tesla chief Elon Musk, who “liked” Aron’s original tweet. Dogecoin investors are still trying to convince Musk to add Doge payments at Tesla.

Meanwhile, AMC’s Aron concluded,

“It’s clear that you think AMC should accept Dogecoin…Stay tuned!”

AMC already agreed to add bitcoin, Ethereum, Litecoin and Bitcoin Cash payments by year-end.

Robinhood App

Trading app Robinhood made it official and announced that it plans to offer cryptocurrency wallets. The crypto wallets will give users more control over their assets on the platform. Robinhood is launching crypto wallets on a trial basis to start with plans to expand them to all users by next year.

Instead of just being able to buy and sell cryptocurrencies, which is the current status, users will soon be able to transfer crypto assets, including Dogecoin, off the Robinhood app.

Dogecoin investors have been pushing for crypto wallets on Robinhood to make it easier for users to spend Doge as a currency, the timing of which couldn’t be better with companies increasingly accepting crypto payments. Dogecoin co-creator Billy Markus called it a good day.

Elon Musk chimed in, saying it is “super important for Doge fees to drop to make things like buying movie tix viable.” According to Markus on the Twitter thread, this should happen by default as Dogecoin Core nodes upgrade to the latest version.

Interactive Brokers Launches Cryptocurrency Trading

U.S. clients of the brokerage will now be able to trade and custody bitcoin, ethereum, litecoin and bitcoin cash alongside stocks, options, futures, bonds, mutual funds and exchange-traded funds, the company said.

“As financial markets evolve, sophisticated individual and institutional investors are increasingly seeking out allocations to digital currencies as a means of achieving their financial objectives,” said Chief Executive Officer Milan Galik.

Chairman Thomas Peterffy said in June that Interactive Brokers, which caters to active traders and sophisticated investors, would launch trading in cryptocurrencies by the end of the summer as the nascent asset class becomes more mainstream.

Other brokers, including Robinhood Markets Inc and TradeStation also provide cryptocurrency trading, while Charles Schwab Corp and Fidelity currently offer access to bitcoin futures.

Crypto-trading commissions at Interactive Brokers will be 0.12% to 0.18% of trade value, depending on monthly volume, with no added spreads, markups, or custody fees, the New York-based company said.

Interactive Brokers said it partnered with Paxos Trust Company, a regulated provider of cryptocurrency services that also works with companies like PayPal on digital asset trading, to enable the new service.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by John McCrank; Editing by Marguerita Choy)

 

Robinhood Takes Aim at Rival With New Payment Feature

Commission-free trading app Robinhood Markets is gearing up to face some new competition now that PayPal wants to jump into the brokerage fray. PayPal is entering Robinhood’s turf, and now the brokerage app wants to return the favor.

Robinhood is readying the introduction of a new payment feature that will make it easier and faster for users to access their hard-earned income. According to a report in Bloomberg, Robinhood will introduce a direct deposit feature through which customers can gain access to their paycheck two days before it would otherwise hit the bank account.

Early Direct Deposit

The new product builds on Robinhood’s existing direct deposit feature, only this one is called Early Direct Deposit. It will have perks such as zero fees, in lockstep with Robinhood’s trading anthem, and of course the early arrival of funds. The new feature remains in the beta stage and the code appears to be built into a future update for the company’s iPhone app.

The Bloomberg article cites a message that will appear inside the app saying:

“Now you can get paid up to two days early. Because eligibility depends on your employer, we’ll let you know if you can get paid early on your next pay cycle.”

By taking on this role, Robinhood will be handling even more sensitive information for users and as a result, plans to bolster its cybersecurity in the interim.

Competitive Landscape

Robinhood is taking a direct hit at PayPal, which similarly offers U.S. users a direct deposit service. As it turns out, PayPal also offers select customers the opportunity to access their pay two days early.

Robinhood will also be going head-to-head with the likes of Wealthfront, an investment service that similarly supports direct deposit, as does fintech company Chime.

Investors rewarded Robinhood for its competitive nature, with the stock up modestly on the heels of a difficult start to the week.

On Tuesday, U.S. SEC Chairman Gary Gensler revealed that the securities regulator is considering a “ban of payment for order flow,” according to Barron’s. Robinhood is among the brokers that rely on this feature to generate revenue.

PayPal Looks to Enter the Stock Trading App Fray

Payments platform PayPal has been in expansion mode this year, and it is bolstering its profile in the fintech space in the interim. First, the company rolled out cryptocurrency trading in the U.S., followed by an international expansion push into the U.K. Apparently, PayPal isn’t done and now it wants to compete with the likes of trading app Robinhood.

According to a report on CNBC, PayPal is eyeing the launch of an equities trading platform. The company got the idea after customer demand for its cryptocurrency offering went through the roof. PayPal has seen the attention around commission-free trading app Robinhood, and management might think that it could do a better job for investors.

A PayPal brokerage could be more than just a glimmer in the eye of CEO Dan Schulman. The company has already tapped regulated brokerage Ally Invest alum, Richard Hagen, to spearhead its Invest at PayPal division. Hagen would be the logical choice to spearhead the brokerage app if PayPal takes the plunge into stock trading. His LinkedIn profile states that his role is to “explore opportunities in the consumer investment business.”

Competitive Landscape

If PayPal moves forward with the app, it will happen in 2022 and it would be geared toward U.S. users to start. PayPal would be entering the fray with the likes of Robinhood in addition to SoFi and Square’s Cash App.

For its part, Robinhood has come under fire this year after getting on the bad side of retail investors during the height of the meme stock craze. Robinhood is a popular app for individual investors. When these investors were able to turn the table on sophisticated traders in GameStop’s stock, Robinhood caved to the institutions and halted trading in the stock. PayPal must see an opening to take market share from the somewhat tarnished Robinhood brand.

PayPal’s Stock

Shares of PayPal rallied on the news, climbing nearly 4% higher. Year-to-date, PayPal’s value has ballooned by nearly 25% as investors have rewarded the company for its crypto-related moves.

If today’s trading is any indication, PayPal could give Robinhood a run for its money.  While PayPal’s stock rallied, Robinhood’s fell nearly 7%.

Investors Stick to Stocks, But Gear up for Bumpier Ride

Signs of caution abound, even as U.S. stocks hover near record highs. Goldman Sachs economists recently lowered their tracking estimate of U.S. economic growth in the third quarter to 5.5% from 9% due to the impact of the Delta variant, while fund managers surveyed by BofA Global Research said they boosted cash overweights to the highest level since October 2020 while adding to positions in defensive sectors such as healthcare and utilities.

Worries over slowing growth in China and other major economies have hit prices for oil, copper and other raw materials while the U.S. dollar, a key destination for nervous investors, stands at its highest level in nearly nine months against a basket of currencies.

Even retail investors, a group that has supported rallies in everything from tech stocks to crypto over the past year, appear to be cooling their heels. Online brokerage Robinhood, the gateway for many retail investors into so-called meme stocks, said Wednesday its clients are likely to slow their trading in coming months.

Past warnings of a coming pullback have so far failed to play out this year, and cutting exposure to stocks has been a losing strategy during the market’s run from its 2020 lows, reinforcing the idea that there are few assets where investors have been able to notch the type of returns seen in equities. Still, the looming risks have bolstered the view that markets may be more turbulent in the months ahead.

“We have gotten past that euphoria-type of rally where everything, all asset classes and all stocks, continued to rally,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, which oversees about $3 billion in assets. Now “you have to be a bit more selective.”

Among investors’ key worries is the risk that the Fed, faced with stronger-than-expected inflation, begins pulling back on its support for the economy just as growth starts ebbing and the coronavirus’ Delta variant threatens to rollback reopenings across the country.

“We got such tremendous Federal Reserve monetary support for the economy for some time, so the market has trepidation about Fed taper and what that is going to do for growth,” said Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management.

Investors will be watching next week’s central bank symposium in Jackson Hole, Wyoming for clues on when the Fed will begin slowing its $120 billion purchases of U.S. government bonds.

BofA Global Research analysts earlier this week moved up their timeline for the start of the Fed’s taper to November, from a previous forecast of January, believing that minutes from the central bank’s most recent policy meeting, released Wednesday, signaled a greater likelihood of an unwind beginning this year.

Rich valuations are also giving investors pause. The S&P 500′s P/E ratio on a forward 12-month basis stands at 21.1, a more than 34% premium to its 20-year average, according to Refinitiv Datastream.

Despite all these worries, many investors are employing strategies that will allow them to stick with stocks, which have benefited from ultra-low Treasury yields and standout growth in the U.S.

Horneman, of Verdence Capital Advisors, has added alternative investments such as some liquid long-short hedge fund strategies that aim to be less correlated with the prices of stocks and bonds.

Greg Bassuk, chief executive at AXS Investments, said interest has recently grown in liquid alternatives such as private equity and venture capital and strategies like managed futures, which aim to hedge risk while still maintaining exposure to stocks. In the U.S., inflows into such investments stand at their highest levels since 2013, Morningstar said in July.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a Friday note that investors should prepare for volatility by diversifying across regions and asset classes, including hedge funds. Haefele said the S&P will finish next year at 5,000, from 4,437.18 today, though he expects a bumpy ride to those levels.

Among the biggest arguments for owning stocks has been the market’s resilience over the past decade, where investors have largely been rewarded for jumping in when equities weaken. For Horneman, that strategy remains in effect.

“We are still on the buy on dip mentality, not sell on strength,” she said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Aurora Ellis)

Why Robinhood Stock Is Down By 9% Today

Robinhood Stock Falls As Q3 Guidance Disappoints

Shares of Robinhood Markets found themselves under strong pressure after the company reported its quarterly results. The company reported that its revenues increased from $244 million in Q2 2020 to $565 million in Q2 2021.

Robinhood’s net loss was $502 million, or $2.16 per share in the second quarter of this year. The loss was driven by a $528 million change in fair value of convertible notes and warrant liability.

Robinhood reported that monthly active users grew to 21.3 million in Q2 2021 compared to 10.2 million in Q1 2020. The growth was especially strong in the crypto segment, as transaction-based revenues in cryptocurrencies grew from just $5 million in Q2 2020 to $233 million in Q2 2021. It should be noted that more than 60% of cryptocurrency revenue is related to Dogecoin, which makes Robinhood sensitive to the dynamics of this meme cryptocurrency.

In the third quarter, the company expects “seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter”.

Robinhood also stated that it would record a one-time cumulative charge of $1 billion in stock-based compensation for restricted stock units related to the IPO.

What’s Next For Robinhood Stock?

Shares of Robinhood reached highs at $85.00 soon after the IPO as traders rushed to buy a “meme” stock. However, the stock quickly lost momentum and is currently trying to settle below the $45 level.

With a market capitalization of more than $35 billion, Robinhood needs to show strong growth to keep the momentum alive. In this light, it is not surprising to see that the stock found itself under pressure after the company indicated that revenues would decline in the third quarter.

Meanwhile, the general market is worried about the upcoming reduction of Fed’s asset purchase program, which is bearish for riskier assets. In this environment, Robinhood stock may gain additional downside momentum in the upcoming trading sessions as the company failed to provide material upside catalysts in the second-quarter report.

For a look at all of today’s economic events, check out our economic calendar.