NEW YORK (AP) — Robinhood made its own leap into the stock market Thursday, the one it helped reshape by bringing millions of new investors to Wall Street, and its shares swung sharply in their first day of trading.
Robinhood Markets’ stock was at $37.57 in early afternoon trading, down 1.1% from its initial price of $38 set late Wednesday. Perhaps fitting for a company that has upended the investing business, it careened from a gain of 5.9% and a loss of 12.2% in the first hour of trading.
It’s a relatively disappointing opening for the highly anticipated offering, which had already priced at the low end of its expected range. The stock could see continued sharp swings through the day given Robinhood’s unusual move to reserve a big chunk of shares for its own smaller-pocketed customers rather than big professional firms.
At its current price, the company is valued at roughly $31 billion, which puts it on par with companies like Kroger and Old Dominion Freight Line, but its heft on the pop-culture landscape may be even weightier. Robinhood has created plenty of passion, both by users and critics alike.
The company has grown explosively since its 2013 founding, with an estimated 22.5 million funded accounts, after it did away with trading fees and made investing easier and even fun to do with its mobile app. More than half its customers are first-time investors, giving them more ability to keep up with the stock-holding, wealthier households that had been pulling away for years.
But Robinhood has also drawn heaps of criticism from users and regulators alike, with a lengthening list of regulatory settlements. Critics say Robinhood encourages unsophisticated investors to make trades too often that may be too risky.
Some users, meanwhile, are still angry at Robinhood after it and other brokers temporarily locked them out of trading GameStop shares earlier this year, when hordes of smaller-pocketed investors were pushing the stock up in part to spite the monied elite on Wall Street.
Now that Robinhood’s stock is trading on the Nasdaq, its performance gives a real-time look at the market’s judgment of Robinhood’s prospects. The company is already delivering the strong growth that Wall Street is always hungry for: Revenue soared 245% last year to $959 million. It then hit $522 million in the first three months of 2021 alone, more than quadrupling from the year-ago level.
But questions remain about whether regulators may tighten oversight of its main money maker. That’s routing its customers’ orders to big Wall Street trading firms, which pay Robinhood to take the other side of the trade.
Beyond that, Robinhood stands to lose if the boom in trading it’s helped create among smaller-pocketed and novice investors fades. That could come if its oftentimes younger customers go back to doing other things than trading on their phones as the pandemic hopefully eases or if users leave for competitors.
Such worries may have dragged Robinhood’s stock down in its early trading, a notable move when stocks traditionally get a pop in their first day.
The relatively low initial pricing for the stock and its early fall were discouraging signs for Sandra Marvel, a 49-year-old investor from Raymore, Missouri, who had been planning on buying shares.
“I completely abandoned my plan,” she said Marvel. “It doesn’t look good. I think there are a lot better trades out there.”
Marvel, who left her job in insurance sales last year to trade stocks full time, has been using Robinhood since 2018.
The company has plans for big growth in the future, continuing its evolution since launching as a stock trading app only for iPhones.
“Over time, we want to be the single money app, the most trusted and most culturally relevant money app worldwide,” CEO Vlad Tenev said in an interview. “So, everything that you use your money for, you should be able to do through Robinhood.”
Among them, he said, were direct deposits of paychecks and paying bills online.
He also pushed back on criticism that Robinhood is making the stock market a casino by encouraging its customers to trade more often.
“I think it’s a big, big mischaracterization because if you look at it, the stock market has been one of the greatest wealth creation tools,” he said. “We should be encouraging access to it and not denigrating people that are able to use it. So in a sense, you’re hearing when wealthier customers are engaging in the stock market, it’s investing. But when the rest of us are accessing the stock market, it’s gambling.”
Robinhood’s stock debut is coming at a very welcoming time. With bonds paying very little in interest, investors are willing to pay much higher prices for stocks than they usually have been through history, and the S&P 500 is close to its record high.
Between 2001 and 2020 the average U.S. IPO returned 14.5% from the offer price on day one, according to Renaissance Capital. So far this year, the jump is even greater, at 34%. For IPOs that have raised at least $100 million, the average first-day return this year is 25%.
Robinhood itself raised nearly $1.9 billion in the deal, which it plans to use to expand and to help pay for expected tax obligations.
Stan Choe And Alex Veiga, The Associated Press
Is global inflation nearing a peak? – Al Jazeera English
Calling the top of the current wave of inflation has been a painful exercise for economists and central bankers, who have been proven wrong time and again during the past year.
But data on Wednesday, which showed that some measures of inflation had cooled in the world’s two largest economies, was likely to rekindle a debate about whether the worst might be over after a year of torrid price growth.
United States consumer prices did not rise in July compared with June due to a sharp drop in the cost of petrol, delivering much-needed relief to American consumers on edge after steady prices climbs during the past two years.
And China’s factory-gate inflation slowed to a 17-month low on an annual basis while consumer prices rose less than expected.
After wrongly predicting last year that high inflation would be transitory, most central bankers, including the US Federal Reserve, have stopped trying to put an exact date on when they expect current price growth to peak.
US central bank officials see inflation decelerating through the second half of the year, the European Central Bank puts the peak in the third quarter and the Bank of England sees it in October.
Here are some of the key data shaping the inflation debate:
Raw materials are getting cheaper…
The main culprit for the surge in consumer prices last winter – energy and other raw materials – may be the harbinger of lower inflation this time around.
Prices of critical commodities such as oil, wheat and copper have fallen in recent months after spiking earlier this year. Oil and food items soared after Russia invaded Ukraine.
The fall in prices came amid weaker global demand and economic slowdowns in China, the US and Europe, where consumers are dealing with high prices.
Some indices of inflation are already being affected: fewer firms are reporting increased input costs, and wholesale price rise is decreasing in many parts of the world
…But European energy bills won’t
With winter approaching on the continent, European households are unlikely to see their energy bills come down anytime soon. Recently, there have been talks of rationing in eurozone countries, including in Germany.
This is because gas prices in Europe – which, for years, has relied on Russia for a large portion of its imports – are still four times higher now than a year ago and close to record highs. There has been much uncertainty surrounding gas flow via the Nord Stream pipeline.
Even in the United Kingdom, which has its own gas but very little storage capacity, consumers are set to see their power bills jump in October when the current price cap expires.
There is bad news for German drivers, too, who will see a subsidy at the petrol pump expire at the end of August.
Expectations are (mostly) under control
Some central bankers can take comfort in the fact that investors have not lost faith in them.
Market-based measures of inflation expectations in the US and the eurozone are only just above the central banks’ 2 percent target, while they remain uncomfortably high in the UK.
After the Federal Reserve’s meeting last month, the central bank’s Chair Jerome Powell stressed that the Fed is ready to use all of its tools “to bring demand into better balance with supply in order to bring inflation back down to our 2 percent goal”.
Consumers in the US, eurozone and UK, expect to see inflation stay above the 2 percent target for years to come.
According to a survey conducted by the Reuters news agency, a vast majority of the economists polled said that inflation would stay elevated for at least another year before receding significantly. About 39 percent of economists asked said that they expect inflation to stay high past 2023.
Core prices may be trending down…
Core inflation, the number that measures inflation while excluding the price of volatile components like food and fuel, has started to cool in the US and UK. Some economists predict Japan and the eurozone will follow suit.
Nevertheless, core inflation remains higher than most central banks’ comfort zone both in developed and developing economies. That means that central banks will continue to increase borrowing costs. The US Federal Reserve last month raised rates by 75 basis points for the second consecutive time. The bank meets again in September to consider further tightening.
And an artificial intelligence model used by Oxford Economics suggests core inflation will also peak in Japan and the eurozone in the second half of the year.
The Long Short-Term Memory network, originally developed to help machines learn human languages, parses detailed inflation data to spot patterns that helps it predict the Consumer Price Index in the future.
…But wages are pointing up
Workers’ wages have increased in the last year due to a tight labour market but not as fast as inflation.
The US Employment Cost Index also recently revealed that higher wages also resulted in a significant increase in US labour expenses in the second quarter of 2022.
According to figures released earlier this week, the cost of labour per unit of production increased by about 10 percent for non-farm firms in the US in the second quarter of this year.
One of the main factors influencing pricing over the long term is wages, and if they climb too quickly, a spiral of price rises may start.
“If that happens, we end up with an almost self-fulfilling type prophecy, where firms will start to push price increases onto their customers,” Brent Meyer, policy adviser and economist at Atlanta’s Federal Reserve, recently told Al Jazeera.
Outside of the US, the economic recovery has been more muted, and the impending recession may make it harder for labour to negotiate lower wages.
Steep price drops will bring ‘sanity’ back to housing market in 2023: Desjardins – Global News
Desjardins is forecasting the average home price in Canada will decline by nearly 25 per cent by the end of 2023 from the peak reached in February of this year.
In its latest residential real estate outlook published on Thursday, Desjardins says it’s expecting a sharp correction in the housing market, adjusting its previous forecast that predicted a 15-per-cent drop in the average home price over that same period.
Desjardins says the worsened outlook stems from both weaker housing data and more aggressive monetary policy than previously anticipated.
The Bank of Canada raised its key interest rate by a full percentage point in July, pushing up the borrowing rates linked to mortgages, and further increases are expected this year.
The report also notes housing prices have dropped by more than four per cent in each of the three months that followed February, when the national average home price hit a record $816,720.
Despite the adjustment in the forecast, prices are still expected to be above the pre-pandemic level at the end of 2023.
Regionally, the report says the largest price corrections are most likely to occur in New Brunswick, Nova Scotia and Prince Edward Island, where prices skyrocketed during the pandemic.
“While we don’t want to diminish the difficulties some Canadians are facing, this adjustment is helping to bring some sanity back to Canadian real estate,” the report said.
The authors also note that the upcoming economic slowdown will ease inflationary pressures enough for the Bank of Canada to begin reversing interest rate hikes. Desjardins expects the Canadian housing market to stabilize late next year.
Bidding wars a thing of the past in Calgary’s once hot housing market
© 2022 The Canadian Press
Canada Pension Plan reports $23-billion loss in June quarter as markets churn – The Globe and Mail
The Canada Pension Plan Investment Board said it lost 4.2 per cent in its most recent quarter, subtracting $23-billion from the fund’s assets.
It could have been worse: The three months ended June 30 were awful for most investors. According to Royal Bank of Canada’s RBC I&TS All Plan Universe, defined benefit pension plan assets decreased by 8.6 per cent, tied with the third quarter of 2008 for the biggest decline in the 28 years RBC has been began tracking Canadian plan performance.
The S&P Global LargeMidCap Index, a measure of stocks CPPIB uses as 85 per cent of its benchmark reference portfolio, fell nearly 13.5 per cent in the quarter. The FTSE Canada Universe All Government Bond Index, the remaining 15 per cent of the benchmark, fell nearly 6 per cent. Blended, that means CPPIB beat a benchmark of negative 12.4 per cent by more than eight percentage points.
CPPIB closed the quarter with assets of $523-billion, compared to $539-billion at the end of the previous quarter. The investment losses were offset by $7-billion in contributions from the Canada pension Plan.
In the early days of the COVID-19 pandemic, when global markets tumbled, the CPPIB asset mix blunted the pain, and the pension fund manager lost much less money than an ordinary investor in the stock market. However, CPPIB often trails when public stock markets rise rapidly, as they did in several recent quarters when investors shook off their pandemic fears.
Now, we have returned to falling markets, and CPPIB is outperforming them.
“Financial markets experienced the most challenging first six months of the year in the last half century, and the fund’s first fiscal quarter was not immune to such widespread decline,” John Graham, CPPIB chief executive officer, said in a statement accompanying the returns. “The uncertain business and investment conditions we noted in the previous quarter continue, and we expect to see this turbulence persist throughout the fiscal year.”
CPPIB said its loss was driven by declines in public stock markets, but investments in private equity, credit and real estate also contributed “modestly.” CPPIB also lost money in fixed income investments, such as bonds, due to higher interest rates imposed by central banks to fight inflation.
Gains by external portfolio managers, quantitative trading strategies and investments in energy and infrastructure contributed positively. CPPIB also recorded foreign exchange gains of $3.1-billion as the Canadian dollar weakened against the U.S. dollar. (Most of CPPIB’s investments are held outside Canada, but it reports results in Loonies.)
The Canada Pension Plan, founded in 1966, is the primary national retirement program for working Canadians. The government created CPPIB in 1999 to professionally manage the plan’s money. Over time, CPPIB has embraced active management and its blend of stocks, bonds, real estate, infrastructure, private equity and other specialized investments has outperformed public markets and its reference portfolio.
While CPPIB reports quarterly, it points to its multigenerational mandate and likes to emphasize its long-term returns. The plan’s five-year net return, net of investment costs, was 8.7 per cent through June 30; the 10-year net return was 10.3 per cent.
CPPIB’s annualized return for the 10 years ended last Sept. 30 was, at 11.6 per cent, the highest 10-year performance figure in its history.
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