Why Is Robinhood (HOOD) Stock Rocketing Higher Today
What Happened:
Shares of financial services company Robinhood (NASDAQ:HOOD) jumped 7.3% in the afternoon session after major indices rose, with the S&P 500 up 0.8% while the Nasdaq gained 1.2%, as the Federal Open Market Committee left the policy rate unchanged at 5.25-5.50% during its March 2024 meeting. In addition, the Committee guided three rate cuts in 2024, in line with its previous projections and market expectations. However, the Committee continued to highlight the focus on getting inflation back down to the 2% target.
Ahead of the meeting, markets were worried that recent inflation data would push the Fed to keep rates higher for longer, potentially resulting in fewer rate cuts in 2024. Notably, the Bureau of Labour Statistics reported that the CPI (Consumer Price Index - a gauge of average price consumers pay for goods and services) for the month of February 2024 came in slightly hotter than expected at 3.2% year on year (vs. Consensus for 3.1%), mostly due to increases in gasoline and shelter prices.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market. After the initial pop the shares cooled down to $18.60.
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What is the market telling us:
Robinhood's shares are quite volatile and over the last year have had 17 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 6 days ago, when the stock gained 13.3% on the news that the company provided its February operating data reflecting strong asset growth and higher trading volumes. Although its funded customers were only up by 130k compared to the previous month (23.6 million total), its Assets Under Custody (AUC) rose to $118.7 billion, representing a 16% month-on-month increase. This was driven by growing momentum in the public markets, which led to higher stock and cryptocurrency prices, and new inflows from existing customers into Robinhood's retirement products, which are offering customers a 3% match on any contributions. As a result, it wasn't surprising that volumes were up across all asset classes compared to the previous month. Notably, equity trading volumes were $80.9 billion (up 36% m/m) while crypto trading volumes were $6.5 billion (up 10% m/m). Given the increased platform activities, Securities Lending Revenue also benefitted and came in at $13 million, up 8%. Overall, the data showed Robinhood is performing well in the near term.
Robinhood is up 50.4% since the beginning of the year. Investors who bought $1,000 worth of Robinhood's shares at the IPO in July 2021 would now be looking at an investment worth $534.19.
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