The Sandbox Daily (8.4.2022)
Robinhood's "RIF," oil's reversal, rising weekly jobless claims, housing prices lose momentum, and Nancy Pelosi's visit to Taiwan
Welcome, Sandbox friends.
Today’s Daily discusses the Reduction in Force (“RIF”) at Robinhood Markets Inc. (HOOD), oil’s great reversal, the rise in weekly jobless claims, slowing momentum in housing prices, and the fallout from Speaker of the United States House of Representatives Nancy Pelosi’s visit to Taiwan.
Let’s dig in.
EQUITIES: Nasdaq 100 +0.41% | S&P 500 -0.08% | Russell 2000 -0.13% | Dow -0.26%
FIXED INCOME: Barclays Agg Bond +0.25% | High Yield +0.26% | 2yr UST 3.022% | 10yr UST 2.663%
COMMODITIES: Brent Crude -3.20% to $93.68/barrel. Gold +1.94% to $1,810.9/oz.
BITCOIN: -4.18% to $22,488
VIX: -2.14% to 21.48
CBOE EQUITY PUT/CALL RATIO: 0.56
US DOLLAR INDEX: -0.74% to 105.722
The Reduction in Force (“RIF”) at Robinhood Markets Inc. (HOOD)
Robinhood Markets Inc. (HOOD) is dismissing 780 people (23% of all employees) across operations, marketing, and program management functions after a punishing first year as a public company. The pandemic-fueled trading boom – including the meme-stock frenzy in early 2021 that drove up shares of GameStop Corp. (GME), AMC Entertainment Holdings Inc. (AMC), and many others – fueled the firm’s drive to an initial public offering (IPO) in July 2021, while it simultaneously drove expansion in its workforce to handle the massive influx of new customers and trading activity. The business quickly slumped, however, with its common stock share price cratering due to declining monthly active users on its app and a market environment favoring cash flows and companies not losing money on the bottom line.
The announcement from embattled CEO Vlad Tenev earlier this week gained the attention of notable venture capitalist, Bill Gurley, who was critical of the company’s current cost-cutting measures on the heels of a similar but smaller reduction in headcount as recent as April. As Indeed.com explains, a “Reduction in Force” (RIF) is when a business decides to permanently remove a position with no intention of rehiring or reopening the position, while a “Layoff” is considered temporary (which can later become permanent) and the company will still keep that position within the HR org chart.
Source: Robinhood, CNBC, Bill Gurley, Indeed.com
Oil’s great reversal
Brent Crude Oil (“Brent”) and West Texas Intermediate Oil (“WTI”), two common benchmarks that track oil pricing in the United States, are now down just over 20% from their respective recent highs and trade back at prices last seen in late February when Russia abruptly launched its “special military operation” in the middle of the dark night against the sovereign nation of Ukraine. Much of this reversal in oil prices has occurred since June so the price action to the downside has been notably swift. 2021 and 2022 have been a renaissance for the energy sector – buoyed by high oil and gas prices, surging demand on the back of the global reopening trade, and tight supply – allowing big oil companies such as Exxon Mobil and Chevron, the United States’ two largest oil companies, to report record profits last week.
Source: Sandbox Financial Partners
Jobless claims show labor demand is softening
Initial claims for unemployment insurance resumed their upward move last week, rising by 6,000 to 260,000, close to its highest level since last November, and above the consensus of 255,000. It was the fourth increase in the past five weeks, pushing the four-week average up to 254,750, its highest level in eight months. While the level is still low, initial claims are about 90,000 higher than the cycle low back in March, clearly indicating that labor demand is softening.
Source: Ned Davis Research
Housing price momentum is slowing
Housing market is losing steam at an incredible rate. Existing home sales, new home sales, and pending home sales are all below where they were in February 2020. The COVID plunge (1H20) for new home sales (orange) pales in comparison to the drop from August 2020 peak. Though home prices are still rising, the real estate sector is clearly slowing down dramatically – thanks in large part to higher interest rates which is what the Federal Reserve was intending by tightening financial conditions.
Source: Liz Ann Sonders
Taiwan fallout over Pelosi visit
China fired 11 Dongfeng ballistic missiles into the waters north, east, and south of Taiwan between 1:56 p.m. and 4 p.m. local time Thursday in response to US House Speaker Nancy Pelosi’s visit, the day after Pelosi defied Beijing’s overtures by visiting the self-ruled island it claims as its own. Secretary of State Antony Blinken said the US had engaged Chinese counterparts in recent days at “every level of government” to convey a message of restraint after Pelosi’s trip, which Beijing has called “an infringement on China’s sovereignty and territorial integrity.” China’s response to the Pelosi visit reflects multiple narratives playing out on the global stage: the complexity of dealing with Taiwan via the U.S.-China diplomatic stance of “strategic ambiguity,” President Xi Jinping’s own political situation as he looks to secure a precedent-defying third term as leader of the Communist Party at its 20th congress later this year, and the rising divisiveness in 2022 among governments led by democracies vs. autocracies.
Source: Bloomberg
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.