đŸ’” The money pipes

...what happened in the markets last week
 

"It's not you, it's iOS 14"

 
Last Week's Market Moves
 
Dow Jones
29,983 (-3.27%)
S&P 500
3,714 (-3.31%)
Nasdaq
13,071 (-3.49%)
Bitcoin
$33,932 (+4.20%)
Dow Jones
29,983 (-3.27%)
S&P 500
3,714 (-3.31%)
Nasdaq
13,071 (-3.49%)
Bitcoin
$33,932 (+4.20%)

Hey Snackers,

It's been a wild week for the investing world. Here at Robinhood Snacks, our goal is to make financial news and the markets digestible (aka: snacky).

Since Robinhood acquired MarketSnacks and launched Robinhood Snacks two years ago, we've had a consistent policy of not covering Robinhood as the primary subject of a story (more on our Editorial Principles here).

So we're continuing to cover one of the biggest market trends in decades, and referencing Robinhood in the context of these wider events.

BTW: Black History Month begins today. Sign up for our daily newsletter to receive our upcoming BHM coverage.

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Trade

The "mainstreamification" of investing spotlights the plumbing behind markets

ICYMI... But that's unlikely. On Friday, we covered how social-fueled stock surges have thrown the market into uncharted territory. Last week, underdog "meme" stocks like GameStop, AMC, and Nokia skyrocketed, thanks to Reddit-inspired buying campaigns. From Wednesday through Friday, multiple brokerages limited — and in some cases, paused — the buying frenzy.

  • Robinhood, E-Trade, Webull, and others temporarily restricted certain trading activity in symbols like GME. Disclosure: Robinhood Snacks is owned by... Robinhood.
  • Some brokerages raised margin requirements for those stocks to mitigate risk. Margin = the percentage of the purchase investors need to fund themselves (rather than borrow).
  • Unsurprisingly, the price of those restricted shares dropped. Some investors were angry, shocked, and confused. And retail investing dominated the social conversation like never before.

Demystify the jargon... Brokers cited financial and regulatory reasons for these moves. Here's what actually happens when you place a trade, and some of the requirements brokerages face (for a Robinhood-specific explainer, check out Robinhood's blog):

  • When you buy a coffee with your card, you see the transaction on your account right away. But Starbucks still hasn't received your $$$ — it can take a few days to move. Similarly...
  • When you buy a stock, you may see the transaction immediately. But you actually pay and get the shares two days after you buy. That's because...
  • All transactions have to go through "settlement" to make sure that sellers actually get paid, and buyers receive securities. AKA: to ensure everyone involved can really deliver.
  • Clearinghouses, which are regulated by the SEC, ultimately ensure that trades get settled. Brokers often need to deposit cash to meet day-to-day collateral requirements with clearing firms, in order to back customer trades.
  • When buying becomes concentrated in a handful of volatile stocks, risk increases for everyone involved. So clearinghouses can ask firms for more cash deposits, to mitigate risk to the system.
  • Those deposit requirements for brokers can dramatically jump based on how many risky/volatile stocks customers are buying. Wild stat: industry-wide collateral requirements reportedly rose to $33.5B on Thursday, from $26B on Wednesday.
THE TAKEAWAY

Last week surprised nearly everyone... because it was unprecedented. Mass "meme stock" buying campaigns significantly increased collateral deposit requirements on those stocks, which led to industry-wide trading restrictions... on those stocks. And retail investing reached a new level of social relevance. As the "mainstreamification" of investing continues, the "plumbing" powering the system will become more and more relevant to individual investors, too.

Highs

Who's up

You used to call me on my iPhone (12).... Apple crossed the $100B quarterly sales mark for the first time, bringing in a ginormous $111B last quarter. That's nearly 3X Facebook and Tesla's quarterly sales combined. The most valuable company on Earth made $28.8B in profit, one of the largest quarterly profits for any company (ever). Every product category saw double-digit sales growth. iPhone sales, which make up over half of the Fruit's total sales, soared 18% after two years of declines. The 5G-enabled 12 inspired a wave of fresh upgrades.

Still goin' ad on you, anyway... Despite all the regulatory and public scrutiny, Facebook posted an expectation-beating $28B in sales last quarter, proving that advertising is alive and well. Ad sales soared 31% from a year earlier, making up 97% of FB's total sales. Monthly users across apps jumped to 3.3B (aka: nearly half of all humans). But Apple ruined some of the earnings fun (claaassic): privacy changes to iOS 14 could hurt FB's precious ad-targeting abilities.

Lows

Who's down...

Max loss... Boeing shares fell 6% for the week, after the plane-maker posted a record loss of nearly $12B last year. Refresher: Boeing's 737 Max jets were grounded for nearly two years following two fatal crashes. For basically all of 2020, they were sitting in parking lots burning cash. Meanwhile, the pandemic sapped demand for Boeing's other jets, too — especially its newest plane, the 777X, which is meant for long-haul flights. It was supposed to roll out this year — now Boeing doesn't expect it'll debut until 2023 (read: expensive delay).

A sweet cream Cold Brew... to ease the pain. Starbucks shares dropped 7% last week, after the caffeinated legend revealed that dining restrictions hurt its biz (shocker). While you were whipping up Keurig cups and instant coffee at home, Starbs' sales fell a worse-than-expected 5% last quarter — and profit plunged 30% from a year earlier. Despite that, Starbucks' mobile-order game was strong: app orders increased nearly 50% since the start of the pandemic.

What else we're Snackin'
  • Think: 10 powerful ideas that can shape your entire life.
  • Live: There are two kinds of happy people — but neither is perfect.
  • Watch: 91 movies and TV shows to stream during Black History Month.
  • Live: The one thing you'll regret at 80, according to Jeff Bezos (FYI: he's 57).
  • Believe: Four psychological habits to build better self-esteem.
  • Wear: Why some people like wearing masks (besides the obvious).

đŸȘ Want to start Snacking daily? Sign up here for our daily market newsletter.

This Week
  • Monday: Black History Month begins. Earnings expected from Nintendo and Warner Music Group
  • Tuesday: Earnings expected from Amazon, Google, Chipotle, Pfizer, Exxon, and UPS
  • Wednesday: Earnings expected from Spotify, PayPal, and Sony
  • Thursday: Weekly jobless claims. Earnings expected from Snap, Pinterest, Ford, and Clorox
  • Friday: January unemployment rate released

Authors of this Snacks own shares of: Apple and Starbucks

ID: 1504485

Robinhood Snacks newsletters and podcasts reflect the opinions of only the authors who are associated persons of Robinhood Financial LLC and do not reflect the views of Robinhood Markets, Inc. or any of its subsidiaries or affiliates. They are meant for informational purposes only, are not intended to serve as a recommendation to buy or sell any security in a self-directed Robinhood account or any other account, and are not an offer or sale of a security. They are also not research reports and are not intended to serve as the basis for any investment decision. Any third-party information provided therein does not reflect the views of Robinhood Markets, Inc., Robinhood Financial LLC, or any of their subsidiaries or affiliates. All investments involve risk and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions and customers may lose money, including their original investment. Robinhood Financial LLC, member FINRA/SIPC. Testimonials may not be representative of the experience of other customers and are not guarantees of future performance or success. Robinhood Financial LLC, member FINRA/SIPC.
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