Emily Graffeo
3 min read
In This Article:
(Bloomberg) -- In the end, Robinhood Markets Inc. found itself caught in the same kind of trade its users favor: One driven more by speculation than certainty.
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Last week, traders were speculating Robinhood would be added to the S&P 500 as part of the index’s quarterly rebalancing. Shares of the online brokerage climbed every day in anticipation, setting four consecutive all-time highs and gaining 13% across five sessions.
But, instead of cementing Robinhood’s place as a contender with Wall Street’s traditional finance firms, late-afternoon Friday proved to be a disappointment to a cohort of traders watching for the announcement at the usual 5:15 p.m. time in New York. S&P Dow Jones Indices had made no changes to the iconic stocks benchmark, in turn schooling traders on the risk of front-running index decisions made behind closed doors.
Robinhood shares duly slumped as much as 8.4% intraday before closing 2% lower on Monday, giving back some of their recent rally.
“There’s some air popping out of the balloon,” said Dan Dolev, an analyst at Mizuho Securities, who rates Robinhood outperform. “I don’t like it because I’m very bullish, but it makes sense to see the pullback.”
While Robinhood’s market capitalization has climbed above the S&P 500’s $20.5 billion eligibility threshold, the committee overseeing the index weighs additional factors, including governance, liquidity and market representation. Other candidates, such as mobile advertising company AppLovin Corp., also fell on Monday after being left out.
In an April note, Stephens Managing Director Melissa Roberts flagged that the index “may not need to make changes as aggressively” in the June rebalance because several index members are acquisition targets.
“There is the possibility that the index committee feels less compelled to be as aggressive as they have been in recent quarters regarding discretionary index changes,” Roberts said on Monday.
Robinhood didn’t respond to a request for comment. An S&P Dow Jones Indices spokesperson pointed back to their methodology, which said that announcements of additions and deletions for the S&P 500 Index are made at 5:15 p.m.
Zero-change rebalances are rare but not unprecedented. The last time the committee skipped making any adjustments was in 2022. Still, the stock’s potential inclusion was subject to speculative debate on Reddit investing boards leading up to the announcement.
