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London (CNN Business)While working at home, everyday investors have flocked to no-fee trading platforms like Robinhood — helping to power the spectacular run-up in stocks. Now, Robinhood is cashing in.
What’s happening: The free trading app just announced that it raised another $200 million in funding, pushing its valuation to $11.2 billion.Robinhood still lags far behind some competitors like Charles Schwab, which is worth $44.6 billion. But the app, which is rumored to be going public soon, has grown quickly during a period of historic market turmoil. The company said it added more than 3 million users in 2020 as of early May. About half were first-time investors.
The startup’s new valuation is on par with rival E*Trade, which Morgan Stanley agreed to buy in February. The investment bank announced an all-stock deal worth roughly $12 billion at current prices.Why it matters: Robinhood’s rise is a big part of the market’s incredible comeback story since March. The S&P 500 is close to a record high even as the United States battles the sharpest recession on record. Read MoreCasual day traders have shown enthusiasm for both popular tech giants like Apple (AAPL) and Microsoft (MSFT) and headline-grabbing companies like Tesla (TSLA), Kodak and Moderna (MRNA), whose massive share spikes have raised eyebrows. A study by strategists at JPMorgan led by Peng Cheng found that Robinhood users are net buyers of stocks that are in the news or have “extreme” one-day returns. A closer look: In giving young investors access to exotic financial instruments normally used by veteran market players, Robinhood has both earned plaudits and garnered scrutiny.US lawmakers have pressured Robinhood to improve safeguards after the apparent suicide in June of a 20-year-old student who saw a negative account balance of $730,000, and the platform halted its planned launch in the United Kingdom last month.On the radar: While retail traders have been racing to get in on the action, insiders have been running for the exits, my CNN Business colleague Matt Egan reports.CEOs, leading shareholders and other senior executives have dumped more than $50 billion worth of shares since the start of May, according to TrimTabs Investment Research. August is on track to be the third month in the past four where insider selling exceeded $15 billion.The pace of insider selling could be a warning sign for the booming market. If investors were really confident in the outlook for the economy and their companies, they’d be unlikely to sell now.
Warren Buffett piles into the gold rush
Warren Buffett has made no secret of his distaste for gold as an investment. But soaring prices appear to be too much for the billionaire to resist.The latest: The Oracle of Omaha’s Berkshire Hathaway revealed Friday that it bought a stake in top miner Barrick Gold. The news sent Barrick’s shares up 11% on Monday, my CNN Business colleague Paul R. La Monica reports. Rival miners Newmont, AngloGold Ashanti and Yamana rose sharply as well.The move comes as gold prices, which rose back above $2,000 an ounce on Tuesday, have surged to record highs this year. The metal has recently benefited from weakness in the US dollar, which makes it cheaper for foreign investors to buy, as well as rock-bottom returns on other traditional safe haven assets, such as US Treasuries.Remember: Buffett has often talked about why he thinks owning shares of quality companies makes more sense than buying gold, an asset that doesn’t generate revenue or earnings like top corporations. In Berkshire’s 2011 annual shareholder letter, he observed that “if you own one ounce of gold for an eternity, you will still own one ounce at its end.”But his latest bet is a clear indicator that Buffett thinks gold prices will keep rising — helping mining companies along the way.
Fresh US sanctions put Huawei’s whole business at risk
The United States has cut off Huawei’s access to vital, advanced computer chips, striking a potentially deadly blow to the Chinese company and signaling that the fight over technology between the world’s top two economies is pushing ahead.
New sanctions deal 'lethal blow' to Huawei. China decries US bullyingJust in: The US Commerce Department announced fresh sanctions on Monday that restrict any foreign semiconductor company from selling chips developed or produced using US tech to Huawei without first obtaining a license, my CNN Business colleague Sherisse Pham reports.It’s the latest sign that President Donald Trump is ramping up pressure on Beijing. In the last three weeks, the Trump administration has threatened bans on popular Chinese-owned apps TikTok and WeChat, and indicated that it could soon restrict Alibaba’s operations in the United States.Washington has long alleged, without providing proof, that Huawei products threaten national security because they could be used to spy on Americans. Huawei has repeatedly denied that its products pose a national security risk.Paul Triolo, head of geotechnology at Eurasia Group, called the latest US restriction “a lethal blow to China’s most important technology company.”It is “potentially [the] most serious effort by the US government to choke off the company’s ability to obtain advanced semiconductors for all of its business lines,” he said in a note to clients.Watch this space: Bank of America said in a recent research note that “tectonic shifts” are underway in global supply chains as companies move export-related manufacturing out of China. Geopolitical tensions will only accelerate this process, which the bank thinks could cost up to $1 trillion over five years.
Up next
Home Depot (HD), Kohl’s (KSS) and Walmart (WMT) report results before US markets open.
Also today: US housing starts and building permit data for July post at 8:30 a.m. ET. Coming tomorrow: A big week for retail earnings continues with Target (TGT), Lowe’s (LOW) and TJX (TJX).
Source: edition.cnn.com