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Many employees can't afford a hefty medical bill that pops up out of the blue. But it happens. And employees who are financially stressed are understandably more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, Aflac plans help with out of pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more@aflac.com BrewMarkets that's aflac.com BrewMarkets
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for Thursday, May 7th. It's Brew Markets Daily and I'm Ann Berry. Robinhood, the platform that ushers in the rise of the retail investor now holds over $300 billion in total customer assets. So what a vantage point from which to see where retail money is flowing. So today I invited on Stephanie Guild, Robin Hood's chief Investment officer, for a jam packed conversation with her insights from that perch on the latest big tech earnings why Steph's watching Amazon but disappointed in Microsoft, her hot take on the UAE leaving OPEC and her expectations for the Fed under its likely new chair, Kev Walsh. Finally, how Steph manages the $1.6 billion Robin Hood strategies product with a lean team of just six people, and how prediction markets may or may not yet appear in her managed portfolios. So stay with us for that conversation with Stephanie Guild. But first, this episode is brought to you by Charles Schwab. Timing the Market, Fighting inflation, Balancing Risk no one says financial decisions are easy. In fact, they can be tricky. And often the forest in your head can lead you sideways. Financial Decod, an original podcast from Charles
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Schwab can help join host Mark Riepe, head of Schwab center for Financial Research, as he offers modern strategies to help combat the wait. What in your head, like overconfidence, loss aversion and recency bias that may cloud your investing decisions. Listen@schwab.com financialdecoder or wherever you get your podcasts.
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Now my conversation with Stephanie Guild, Chief Investment Officer at Robinhood. Thank you for coming back and in studio too, which is such a treat. Looking very chic in your blazer, I may say.
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D
It was so much fun. Of course I would come back.
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B
Well, thank you. And you've come back at such an exciting time because we've just had some of the big four tech names come out with their earnings with big capex numbers. What's your hot take? Especially Matagon? Take us through. What's the Steph Gill take on these at the moment?
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D
I just think you need to analyze them individually. Like everyone focuses on like oh, they're the Big Mag seven and they are the biggest companies which will impact investments in the S&P 500, for example, because of how large they are. But I think they're all taking a different tact and you've seen such a disparate performance from each of them. Like Meta is just swinging for the hills like they always do. And you know, people are not really sure about the CapEx returns. So you see that in the stock price where we don't own it in our portfolios. But you know, Amazon's been very interesting to me because of their, their new chips and like that. That is what everyone's investing in. I mean, the halo trade, you know, the hard asset trade is very strong and so the ones that are more connected to that I think have done better. Microsoft was disappointing because I just, I feel like, you know, the stock is down quite a bit. It feels like they should be doing better. And I know there's been some differences with OpenAI, which is probably maybe longer term better for them, but I'm just, I'm surprised, like they had such a way to get their air in front of customers.
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B
Yeah, they had a head start.
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Sure. It just is, it's. That's disappointing. And so I'm wondering if I was just wrong about them like being cheap. You know, maybe they're cheap for a reason. I don't. I think there's more interesting action outside of the max.
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B
Well, let's talk about that. Where is the interesting action going on?
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D
In the hard assets that's. But in the things that are connected to hard assets. So in the chips, obviously. But that's been a trade for a while and Nvidia got a little cheap. Now it doesn't look as cheap anymore because it's rallied but I think in the picks and shovels places. So like in the optical layer, so names like Coherent and Lumentum. And if you go even behind that, like the, the resources that play into that, you need like I was thinking about like some themes generally. Is that like complacency sometimes set in? I think that's what happened in the software space. Right.
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B
Interesting.
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D
And then everything is really old in our country. You know, if you think about like the wealth is controlled by the oldest, almost the oldest population of the baby boomers. And our electrical grid is like 70% of it is older than 30 years. And so that layer has to be replaced. And I do think like the current administration is behind that effort. And so that's where I think there's some interesting plays as well. It's just really like it's an industrial revolution, but not your grandfather's industrial revolution.
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B
Well, let's talk about that because this is a big election year, right? We've got the midterms coming up. So this isn't so much a political, political question, but it is more an electoral cycle question which is we can get this big Persian momentum now the administration is behind upgrading the grid, for example. But if the administration changes, what's your level of confidence that momentum continues? Or does it, does it, does it take on a life of its own if enough money can get in the ground?
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D
Now I do hope it takes on a life of its own because I do think it's one, good long term for our country and two, it actually can be good for a part of the labor market. Right. Like, I mean not everyone has trained in this for decades. We were told to go to college and get a desk job. And so that, that has to change. But I do actually think it's, it's the right thing longer term. And I would hope that any administration would seen that, would see that. But it's certainly like the biggest pushback you're hearing now. And the thing that I'm kind of watching closely is just the pushback on building of these data centers and what it means for the local communities that is a political hot potato or is right come starting to be. You know, the one issue I think you have with all of this too is that it does affect inflation. All of this demand for things means that where some of this like work and resources might have gone, won't go or it'll just be cost a lot more. And I'm always, I need to read more about this because I was just reading some research about like why hasn't the oil prices, you know, things. And I think it's still coming because there was like a backlog and there were inventories that get tapped first. But I do think it's still coming. And I'm afraid what ends up happening, and someone said this in another piece of research I was reading, is that the people who own stocks are less impacted by higher oil prices than the people who don't necessarily own assets and stocks. And that's it just makes like that
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K shaped economy exacerbates it. Can I get your take on the United Arab Emirates leaving OPEC just to talk about oil for a minute? And I know without sort of the lay persons, not necessarily the oil expert view, but do you look at that and say, oh wow, that's a real crack in an institution that's been around for as long as you and I have been covering.
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I mean, it really is like you pay attention. Okay. How much of supply are they going to say they're going to put out? And if they're not going to make those decisions together, like the, the monopoly that sort of all these countries together. And I think it's like what, 12 nations coming out of the Middle east is that. Then what is, what does oil do? How do you track it? And I do think it's a big deal, but I, when I saw it, I honestly was like, was this part of the plan?
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Right.
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D
Oh, that's like to break it up and make like everyone kind of more on level playing ground. Because the US produces a ton of gas and oil. Yeah.
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A different cost structure, different. Different constituent, constituent parts. But, but it does feel like a shake up. And so when you look at, Take a big step back, Steph, and look at the market overall, do you look at this market and say it's an expensive one? Do you say, you know what, I believe in the industrial revolution, it's just not your grandfathers, therefore it's sort of fair game. What's your macro take on all this?
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It's, it's such a good question because.
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But it's a torturous question.
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It is, it's torturous because there are times when it's obviously not expensive. Yeah, it's not obviously not expensive because so much of it depends on assumptions of what will happen in the future. And that's why you have things like they're putting more capex into meta and then the stock price goes down no matter how good their revenue was. So I look, and relative to history, it is expensive. It's not. The history actually doesn't quite matter. It's actually like what comes to fruition.
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Well, there's a debate around that. Right. You've got like Dan Ives came on the show and he's like, look, the old rules don't apply anymore.
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Right.
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To your point, this is an adult. Okay. There's another school of thought which is history doesn't repeat, but it rhymes. So. And I get frustrated as, as a money person because I'm like, you know, the old rules are certainly not applying. It feels right now when you look at the geopolitical state and you look at inflation. So when you think about your success as a portfolio manager and you think about the rules you've used to manage money in the past, which rules are you applying now?
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I do think like looking at Individual company management decisions and their capital allocation matters more than it ever has. There's a. And one of the reasons why I agree with Dan Ives is because there were four tailwinds that existed for the last 40 years and they're all gone.
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Which are they? What are those?
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Interest rates falling consistently over time, Corporate tax rates falling consistently over time. Our deficit is too high to have either of those things continue. And being able to pump up the deficit is also not necessarily something we can go to right away. And then the baby boomer generation, the last of them turn 65 in 2027. While some of them will give their money away, the wealthiest, there's a whole concession of those that were putting money in their 401k consistently into index funds that will now be net drawing from those. And what does that mean for the largest companies in the broad based indices? I actually think there's more growth below those lines and that's why you actually have to, you don't have have the wind at CEOs backs where their decisions matter more. And just case in point, the Federal Reserve did a study in 2023 and showed that from 1989 to 2019, 42% of U.S. corporate profits were down to interest rates and tax rates falling.
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Oh, that's fascinating.
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And so now your decision as a CEO, like you could have done nothing and improved your margins. Now you can't, you can't rely on that. And so that's why I think like really focusing on capital allocation and picking the right stocks, like over time it's going to be hard day to. I also think this market is one of the fact that retail participates more, which I love, but that they have access to information like no other generation. I mean I do think listening to podcasts like this and going on X and reading everything like that is almost faster and better than reading institutional research many times. But what I think it means is the market moves faster, it recognizes value faster and it will also build up its own expectations faster. Such that when every piece of good news is baked in like you have
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to take some profits, overshoot faster.
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Yes.
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I guess in other ways it'll also undershoot faster too.
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You would think. You would think, no 100%. You see it like KLAC reported great earnings, they had one small like they just met on a couple metrics and stock is down 7,8% at least last look. So I, you know, and I'm like it's a great company, there's nothing wrong with it. So yes, if you. It's not enough to just meet expectations anymore. And that's, that's why I think you have to manage your book.
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Let's take a break and when we come back, more of my conversation with Stephanie Guild. Let's face it, major medical might not have been designed to cover everything. And unfortunately, sometimes all it takes is an unexpected medical or dental bill to throw your carefully curated financial world into disarray.
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And your wallet isn't the only thing thrown off. Financial stress can also mean lost employee productivity impacting business costs.
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That's why Aflac works to pay claims quickly, accurately and fairly to help employees find their balance.
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Again, offering Aflac plans comes at no direct cost to businesses, and these plans can save businesses and employees tax dollars when payroll deductions are pre taxed.
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Learn more@aflac.com BrewMarkets that's aflac.com BrewMarkets
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ready to soundtrack your summer with Red Bull Summer All Day Play. You choose a playlist that fits your summer vibe the best. Are you a festival fanatic, a deep end dj, a road dog, or a trail mixer? Just add a song to your chosen playlist and put your summer on track. Red Bull Summer All Day Play. Red Bull gives you wings. Visit Red Bull.com BrightSummerAhead to learn more. See you this summer.
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Now back to my conversation with Stephanie Guild, Chief Investment Officer at Robinhood. It is another sort of the issue for CEOs. I'm curious when you meet them and you talk as part of your diligence, which is as a result of everything you've just described with the market movement, the disconnect between actual execution when the CEOs do get those margins going and the share price can make it hard for them to motivate their employees, right? If you're a public company CEO and that direct correlation between your share price and your actual execution gets diluted, what do you think about their ability to hire great talent relative to say, a big private company, right, that doesn't have that kind of pressure?
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Maybe it's just my own hot take, but I actually think it's more motivating to go to a company that you start to see do less bad and you can join it and get in at a better valuation than joining a company that almost feels like you're chasing the same way you invest in a stock after it's up 150, 300%. I actually think it's harder to motivate once you've you got in low and you've completed that ride and you see now like oh, especially if you're in it, you can see things changing within the company. That I actually think that's when it's the hardest to keep people motivated, is that they've already achieved some sort of success.
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You know, lots of interviews with Jensen Huang recently, right. When everyone says to him, how do you motivate all your video employees when they have made so much money? And he speaks to talent needing to be motivated more than that, which is sort of extraordinary. I do want to come back to one thing I hadn't really thought about much before till you just said it. Steph, which is the wind has been at the back of the markets from the now boomer generation saving for all those years. Do you think a substitute for that part of the population becomes the international investor that wants to get more money in the US markets and that there are more retail investors overseas thanks to the likes of international operations of Robinhood, for example, and that that kind of capital will start to flow towards US equities in greater volumes?
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I think, I think it could be. I think they've already been making investments that way through mutual funds and things like that. When I was at JP Morgan I worked in our London offices and my sole job was to essentially represent our US equity portfolios to non US investors across Europe and parts of Asia. And the time I was there the US market wasn't as hot as the European market. But I think it's been a place that people have been already putting money. I also feel that there's in many countries, and maybe this has changed because that was a long time ago, is that they are still have this kind of home bias. This one place I think could start to replace it. And this is very new. But you know we, we're going to be part of launching Trump accounts and it is a way for the next generation to participate earlier than ever before. And I also wonder like, is it part of that plan, like recognizing the, the larger trends that have been ignored?
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Yeah, getting that boomer replacement capital in, that's at one end of Robinhood's, you know, participating in that. We saw that announcement at the other end. Let's talk about the digital advisory product that you oversee Steph, which is Robinhood Strategies. Now you have about $1.6 billion in assets under management. Is that the right latest number? More than 285000 funded customers. That's as of the Q1's earnings that came out. Talk about that where money coming from.
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It's been a mix of people funding with cash and bringing in assets. I think the one thing we've spent more time on in the last three months is recognizing the fact that, that those tailwinds I talked about led a lot of people to have a lot of holdings in their portfolio, existing portfolios that had large gains in them. Right. Like it's been an incredible run for a long time. And so whether they were investing in a robo advisor somewhere else, it's something that we could, you know, we had to figure out how do we, how do we incorporate them into the new way we think you should be investing for this, you know, the next secular market environment that we're in. So that's something that we, we've created a lot of different like approaches and we really try to be white glove about it in terms of like hand holding people through that transition and making sure they don't have a big surprise tax bill in transitioning. Because we own single names, not just ETFs, so they're, you know, we're not going to hold on to every ETF they have that they bring over. The, the underlying customer is also, I'd say the one thing that I've been, I've been actually happy about because it was not a goal for us, but I thought it could happen is that people also use us for idea generation and that they have part of their portfolio with us and part of their portfolio where they're managing it and they'll see names we buy and they'll be like, oh, I, you know, these are interesting, I wouldn't have thought of that. And then, you know, kind of figure out their total allocation should be across their self directed and managed portfolio.
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That's a particularly interesting point when I think about what is maybe to come as a result of IPO activity that there's so much chatter about. So many ETFs are market cap weighted, lots of the indices are. And if we see OpenAI anthropic SpaceX come out, we're just going to see an exacerbation, right Steph of this market cap skewer we already see towards the max seven. So I'm very curious, do you anticipate what you've just described ramping up or do you think that your team is going to have more responsibility for getting active diversification going?
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It's a good question. I think maybe it's helping with that active diversification because despite if you look at the opportunity set, I think behind this industrial AI revolution, if you just took Nvidia out of it and a couple of the other larger companies that are integrated in this and even if you had SpaceX as part of that or anthropic or OpenAI, more number of companies are. Are actually mid cap size. And so like the median mid cap opportunity set is you know that market cap is much smaller than like would. So yes. It makes it, it makes it more like more companies to be the largest. Right. Like. And I think it's close to 40% of the market cap is in those top 10 names in the S and P. And it will maybe get bigger but I don't. I actually think it, it makes the opportunity set even more interesting.
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So for your particular area. So Robinhood Strategies, how big's your team? Actually Steph, I'm curious.
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It's not that big and that's kind of by design. So there's around six of us.
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Six?
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Yeah.
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Wow. For 285,000 funded accounts. But six of you at the core of your team.
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Yeah.
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I mean if you think about it like we didn't. So you said earlier when you meet company management. And while I will listen. I'm part of the economic club of New York. I hear CEOs and things like that. But I actually think we start with the behavioral finance principles of using data first and foremost. I have a PhD on my team and we have. What's that phrase? She's my quant. And we start with the stock rankings. And so that doesn't take a lot of people that that's kind of making sure that you're continuing to do quantitative research and AI is a big part of how we form our investment opinions. And I truly believe I'm not going to need to make that much more of a bigger team because even if we grow to huge because AI is to me that powerful. It's like having a very knowledgeable person on the team that can tell you anything. Now context matters and you have to feed it the right information. But I do think it makes sense. Us keeps us very lean but smart.
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That's fascinating because portfolio allocation does particularly lend itself to a lot of automation.
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Yeah.
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But the actual brain power the think tank of you is a small number. That's. That's extraordinary. I hadn't realized it was. It was so lean but scaled.
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Yeah.
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And in terms of some of the other newer products, whether it's crypto or talk about prediction markets. Do prediction markets play a part in your offering as well?
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Not in Robinhood Strategies. It plays a role in. I watch all the non sports ones and what's happening. I have this whole ranking from the team that shows me the most traded and what the results were best. AI, for example, is one of the ones that's been more popular. So use it there. I would love to get to the point where we're including it in portfolios, the non sports ones, but we're just not quite there yet.
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Are you going to just wait, Are you going to wait for the regulatory. Yeah, it kind of, it feels like it's coming.
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Yeah, I mean, I hope so. I think it's a great addition to portfolios and I think it also helps not only able to, for you to put in hedges that you can't write. Like our, our best hedge is like holding more cash.
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Like.
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Yeah, because we don't use options or futures yet anyway. But we are, I think it's another way because you could, you could predict that someone will beat earnings, a company will beat earnings, but the stock price might not react because of something with some commentary.
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Everything you just described earlier, right?
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Yeah. But if you, if you get to put in a prediction market that they'll beat by some like that to me is like, oh, that's, that's our bet versus the, the bet. The market will react the way we,
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B
that's fascinating that you're sort of describing prediction markets. Your point is a hedging tool versus normal market moves. That is actually very interesting, Interesting idea. Last question for you, Steph. Just while we have you, we have a new Fed chair likely coming in. Kevin Wash, just your quick take on what you think his appointment would mean for the way in which the markets change function or change direction or don't perhaps.
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I think he obviously wants to be dovish, but I also think he'll be disruptive.
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Oh, interesting.
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I think, I think that's to me like if you look at the current administration, they are, I do think disruption is part of their goal around the world. And so I do think this will be disruptive. I do think that he recognizes that the balance sheet of the Fed is not a good positive thing for us necessarily. It doesn't give you room to really expand when you need it. So I think that's, that's not necessarily a positive thing. That being said, he unfortunately is not the only voice and I do think Powell will stay on the board even if he's not the chair. So I'm not, I think it'll be a little hard to be extremely disruptive
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right away, but certainly we'll be watching what he says because there might be disruptive language if not action.
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Absolutely.
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All right. Well, we'll get the popcorn ready, Steph, so come back when we've seen a little bit more of that and we'll unpack it together. Thank thank you. Well, a huge thanks to Steph Guild for joining us. Well, it's 4:00pm on the east Coast. The markets have closed. There it is, the closing bell. And so while everything is wrapping up and we don't have a ticker tape, we'll instead throw it over to our human ticker, our producer John.
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Here are some earnings results Moving the markets Shares of Planet Fitness PLNT plunged more than 30% today after the company reported a drag on signups and trimmed its guidance. The company reported 22% revenue growth in the recent quarter, but the slow member growth sent the stock to having its worst day ever. Planet Fitness CEO Colleen Keating says they are pausing price increases and will prioritize marketing spend, looking for long term growth through member acquisition and affordability. In the report, in addition to referencing weak marketing and competition, the company cited bad weather conditions. Shares are down 60% so far this year over to affordable luxury shares and Tapestry, the fashion company behind Coach and Kate Spade were down 10%. This despite reporting earnings that saw quarterly revenue jump 21% to $1.9 billion, which beat estimates. The company also raised its full year sales outlook. The star of the portfolio is the Coach brand, with its revenue increasing 30% compared to a 10% decline over at Kate Spade. And marketing appears to be the driver. Coach has increased spending on marketing by roughly 50% over the past year, with total marketing spend now approaching $1 billion annually. And it's working. So says our Gen Z producer Avani. This spring, the brand is partnering with young celebrities like actress Elle Fanning. Shares in tapestry ticker TPR are up 5% this year. And finally, shares in the fast casual restaurant Shake Shack ticker S H A K were down as much as 30% today after the company posted first revenue that missed Wall street estimates. That along with a $2.6 million operating loss which was attributed to higher commodity costs, namely the rising price of beef. Also to blame bad weather in January and March, a bright spot for Shake Shack Digital sales grew 35% as customers took advantage of special offers in the app. For the year, shares in Shake Shack are down over 15%.
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That's it for today's blue markets.
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Daily Brew Marcus Daily is hosted by Anne Barry and produced by Jaquerteau Tarkab Dalatif, Aveni Laroya and Emily Milian. Our technical director is Euchena Wo' Ogu. Brittany Dotacco is our audio engineer booking by A.B. silver and the president of Morning Brew Inc. Is Devin Emery. Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew daily. See you back here tomorrow. Same time, same place.
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You can't reason with the sun. Trust us. We've tried. This summer, it's time to put that angry ball of fire on mute. Columbia's Omnishade technology is engineered to protect you from the sun's harsh rays that can burn and damage your skin. The sun is relentless, but so is our gear. Level up your summer@columbia.com to spend more time outside and less time slathering on aloe lotion. You're welcome, Columbia. Engineered for whatever.