Finance

John Stoltzfus encouraged investors to remain optimistic despite this week’s wild market swings.
The Wall Street bull, who serves as Oppenheimer Asset Management’s chief investment strategist, said he doubts that the Covid-19 delta variant and Federal Reserve tightening worries will spark a significant downdraft.

“I not only think it can edge higher, I think it can likely see our $4,700 target for the S&P 500 by the end of the year,” Stoltzfus told CNBC’s “Trading Nation” on Wednesday. “We wouldn’t bet against the U.S. consumer.”
His S&P 500 price target implies a 7% increase from current levels. The index fell 1.1% on Wednesday to 4,400.27.
“What we’re going through right now is quite natural as a transitionary period. We’re coming out of the Covid situation,” said Stoltzfus. “The [Biden] administration has now moved to have [booster] shots available for all adults as of Sept. 20 … Now, that looks very positive for the economy and the reopening.”
But in the meantime, it appears consumers are tightening their purse strings. The latest University of Michigan consumer sentiment index fell to its lowest level since 2011. Plus, July retail sales came in softer than expected.
Stoltzfus suggested it’s premature to worry about delta’s impact on spending and slowing growth.

“I’m not surprised at all that the consumers pulled back some,” he said. “It does remain the main risk, but it would appear … we are moving towards it lessening as a risk. And, we think the market will recognize that shortly.”
He also said he expects the market to take the Fed’s tapering plans mostly in stride.
“Could we see some volatility? Oh, yes,” he added. “But volatility … would be manageable and digestible.”
Stoltzfus said he would use weakness to broadly buy stocks. His main strategy: a barbell approach that has a bias toward consumer discretionary, financials, industrials and information technology.
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Robinhood’s revenue more than doubled in the second quarter to $565 million, bolstered by a massive surge in crypto trading, the stock trading app said in its first earnings report as a public company on Wednesday.
But the shares dove in after-hours trading after the company warned a slowdown in trading activity would hit revenues in the current quarter. Investors may also be concerned whether volatile crypto can continue to provide such a tailwind.

Revenue surged more than 131% in the period from $244 million a year ago and was near the high range of the company’s forecast of $546 million to $574 million.
Revenue from crypto trading totaled $233 million, more than half of all the transaction-based revenue of $451 million for the second quarter. Cryptocurrency’s share of revenue jumped to more than 51% from 17% in the first quarter.
More than 60% of cumulative net funded accounts traded crypto in the quarter. In the second quarter of 2020, crypto-based revenue was just $5 million.

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Clients trading options contributed $165 million to transaction-based revenue last quarter, and equities were $52 million. Robinhood also earns revenue off of its gold subscription service.
Assets under custody ballooned 205% to $102 billion in the second quarter of 2021, compared with $33 billion in the second quarter last year.

Robinhood warned investors that its third-quarter results could be affected by a slowdown in trading after a record second quarter.
“For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter,” the company said in the earnings release.
Shares of Robinhood dropped more than 8% in after-hours trading. Robinhood shares jumped 6.7% to $49.80 on Wednesday into the results.
Robinhood reported a net loss of $502 million, or $2.16 per share. That’s within the expected net loss of $487 million to $537 million forecast by the company. The brokerage turned a profit in the same quarter last year. Costs associated with the change in fair value of convertible notes and warrant liability totaled $528 million in the second quarter of 2021.  
Total funded accounts (those tied to a bank account) totaled 22.5 million as of the second quarter, in line with Robinhood’s forecast. This is up from 18 million in the first quarter, which was an increase of 151% from a year earlier. 
Crypto trading, which Robinhood first introduced in 2018, has ballooned in the last few years. Robinhood offers seven different digital coins, including bitcoin, ethereum and litecoin. Dogecoin, meme-inspired token, accounted for 34% of its cryptocurrency transaction-based revenue in the first quarter. 
Robinhood specifically called out dogecoin as driving crypto revenues and warned about a slowdown in trading activity in the digital asset.
“If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” Robinhood said in a 10Q released after the bell.
Robinhood makes money in crypto by routing orders to market makers that the company says offer “competitive pricing” and taking a percentage of the order value. The price of bitcoin hovered around $45,000 on Wednesday, up more than 50% on the year.
Robinhood went public on the Nasdaq last month, hitting the public markets it seeks to democratize for amateur investors. Since the debut, shares of Robinhood have had a wild ride. After sinking on the first few days of trading, the company had a meme stock moment when it rallied 50% amid retail investor interest.
Earlier this month, news that certain Robinhood shareholders will sell up to 97.9 million shares over time dented the stock. Robinhood said the SEC informed the brokerage on August 13 that they are reviewing the resale S-1 and that no sales can be made until the SEC staff completes their review and declares it effective.

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The bank has decided to keep the products available for those who actively used them or want to reactivate old ones, according to a spokeswoman for the San Francisco-based company. It will not offer the credit lines to new customers, however.
After CNBC reported on the closures last month, customers asked the bank to keep their accounts open to avoid inconvenience, according to a person with direct knowledge of the situation. Another consideration was the potential impact on credit scores, said the person.
The bank has begun sending letters to customers informing them of the company’s change of heart, the person said.

Wells Fargo signage on May 5th, 2021 in New York City.
Bill Tompkins | Michael Ochs Archives | Getty Images

Wells Fargo is reversing an unpopular decision to shutter personal lines of credit for its customers.
Last month, CNBC reported that the bank had informed customers that the revolving credit lines would be closed after a product review. In a six-page letter, the bank warned that the actions could impact users’ credit scores, a possibility that agitated some people.

The decision drew criticism from consumers who lean on the product as well as Sen. Elizabeth Warren, a frequent critic of the banking industry. Wells Fargo has dealt with a series of reputational blows after it was revealed in 2016 that employees had improperly opened millions of fake accounts.
Now, the bank has decided to keep the credit lines available for those who actively used them or want to reactivate old ones, according to a spokeswoman for the San Francisco-based company. It will not offer the product to new customers, however.
After the CNBC report published last month, customers asked the bank to keep their accounts open to avoid inconvenience, according to a person with direct knowledge of the situation. Another consideration was the potential impact on credit scores, said the person, who declined to be identified speaking about the bank’s internal deliberations.
Of the customers with personal lines of credit, 60% actively used them, while the rest hadn’t in the past 12 months, said the person.
The bank has begun sending letters to customers informing them of the company’s change of heart, the person said.

Here is the bank’s full statement:

As part of our strategic review of businesses last year, we determined that our suite of other consumer products serve our customers better than personal lines of credit. As a result, we ceased opening these lines in May 2020, and recently notified customers that we planned to close existing lines. We heard feedback from our customers and that feedback is very important to us; we are responding by ensuring customers can keep these lines of credit open. 
For customers who have been using their lines, we are informing them that their lines remain open and they can continue to use them.  For customers whose accounts have been inactive for the past 12 months, if they would like to keep their lines open, they can call us or simply use their line. For those inactive customers who do not activate their lines in one of these ways, accounts will be closed on December 2, 2021. 
Beginning August 17, we have been communicating with all customers who received the earlier letters to inform them of this change, using both email and written letters.

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People wait in line for t-shirts at a pop-up kiosk for the online brokerage Robinhood along Wall Street after the company went public with an IPO earlier in the day on July 29, 2021 in New York City.
Spencer Platt | Getty Images

Check out the companies making headlines after the bell: 
Robinhood — Shares of the commission-free trading app tumbled more than 5% in after-hours trading after its first earnings report as a public company. Robinhood reported a net loss of $502 million, or a loss of $2.16 per share, within the expected net loss of $487 million to $537 million forecast by the company. Its revenue more than doubled to $565 million, boosted by a massive surge in crypto trading.

Cisco — Shares of the networking hardware company dipped over 1% in extended trading even after the company’s quarterly earnings and revenue exceeded analysts’ expectations. Cisco reported earnings of 84 cents per share, adjusted, compared to 82 cents per share as expected by analysts, according to Refinitiv. Its earnings guidance was slightly disappointing.
Nvidia — The chip giant saw its shares climb after its quarterly earnings report. Nvidia’s earnings and revenue for its fiscal second quarter beat Wall Street estimates amid strong graphics cards sales. However, its cryptocurrency chip products had lower sales at $266 million. The company predicted in May that the segment would hit $400 million.
Wells Fargo — The bank stock slid slightly after the lender said it is reversing a decision to shutter personal lines of credit for its customers amid backlash from customers. The bank will keep the products available for those who actively used them or want to reactivate old ones, but it will not offer the credit lines to new customers.

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Investors have begun preparing for the Federal Reserve’s expected move soon to begin reducing the rate of its monthly bond purchases.
Sell-offs in small-cap and international stocks are among the changes, even though the broader market has remained strong as tapering grows closer.

People walk past the Federal Reserve building on March 19, 2021 in Washington, DC.
Olivier Douliery | AFP | Getty Images

The Federal Reserve has been preparing the markets for the onset of its first policy tightening moves since the beginning of pandemic, and investors have begun bracing for the change.
Tapering, as it has become known, is likely to start in the coming months, almost certainly before the end of the year. The Federal Open Market Committee’s minutes from its July meeting indicated officials are preparing to taper this year.

That means the Fed will start reducing the amount of bonds it buys. The central bank has been purchasing at least $120 billion a month to drive down longer-term interest rates and spur economic growth.
Recent public comments and media reports, including one Monday on CNBC, indicate the purchases likely will trickle lower until they stop altogether sometime in 2022.
Those purchases have become a pillar for stocks and bonds, and markets have started to adjust.
“We’re well into the taper, have been for months and it’s very noticeable in the markets,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “To me, tapering started in March and impacted everything just like you’d think tapering would.”

Paulsen pointed to a variety of indicators that show the market reacted to an expected deceleration in bond purchases.

For one, he noted that market-based inflation measures pulled back. He also noted the “sideways” movement in commodity prices and the flattening of the yield curve. Within stocks, small-cap, cyclical, international and emerging market equities all pulled back.

Perhaps most importantly, money stock measures, which reacted sharply to when the Fed ramped up the bond buying program in March 2020 as the pandemic hit, have fallen quickly this year. The are down from a 1.4% monthly gain in January to essentially flat in June — even as the Fed continued buying bonds.
Essentially, the lack of growth in the monetary base, or M2, is showing the diminishing impact of the Fed’s bond purchases, Paulsen said.

He also noted that markets have digested the moves fairly well and might not even react once the official tapering starts happening.
“Now, it’s like you’re selling the rumor and buying the news,” he said. “I wonder if that’s what’s going to happen with official tapering.”
There have been some notable other adjustments in the market.
One move that raised eyebrows was Palantir’s purchase of $50 million in gold bars, a move seen as a brace against uncertainty by the data analytics software company.
Such moves, including the continued popularity of cryptocurrencies, indicate lingering concerns about the potential for black swans that could emanate from surprise developments in policy and geopolitics.

How the Fed can avoid trouble

Maintaining a smooth transition into tighter policy, then, could come down to communication.
The Fed has had a spotty record when it has tried before to remove accommodation, with markets revolting several times since the “Taper Tantrum” of 2013. That one began when then-Chairman Ben Bernanke surprised markets by discussing tapering during a public talk, and his successors have had their own foibles with managing policy moves.
Janet Yellen, Bernanke’s immediate successor and now the Treasury secretary, famously said shrinking the Fed balance sheet would be “like watching paint dry.” Current Fed Chairman Jerome Powell annoyed investors when he said the same balance sheet program was “on autopilot,” indicating an intransigent stance that markets didn’t like.
“When you’re changing anything this large-scale, there’s a bit of uncertainty,” BMO Wealth Management chief investment strategist Yung-Yu Ma said. “There could be a pause in the market to see how this plays out.”
Convincing markets that policymakers will continue watching data and adjust policy accordingly will be key, Ma said.
“The Fed should remain flexible. That’s the most important thing,” he said. “If they communicate that they’re going to be nondogmatic and assess the situation as it evolves, I think the market would take a lot of comfort in that. The market might be taken aback by something that looks less flexible.”
Ma expects the Fed to take the conservative course and say it will be flexible.
The speculation comes amid a raft of public statements indicating building support within the central bank to start tapering relatively soon.
Boston Fed President Eric Rosengren told CNBC on Monday he imagines an announcement likely to come as soon as the September meeting, with the actual reductions to come before the end of the year at the latest. He noted that the bond purchases, also known as quantitative easing, are “not nearly as effective now as it was when we were coming out of the financial crisis.”
Still, getting out of the bond purchases represents “a change in one of the major pillars of the U.S. equity rally, not to say THE major pillar,” Swissquote senior analyst Ipek Ozkardeskaya wrote. “Naturally, the Fed pulling away support will feel like they are pulling the rug from under the market’s feet. But no stress.”
Ozkardeskaya said “it will certainly be different this time” for Fed tightening as the move is well telegraphed and interest rates are likely to remain near zero into 2023.

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Classic car insurance company Hagerty is going public via a special purpose acquisition company.
The merger with Aldel Financial will provide stock market investors with a way to invest in the fast-growing classic car market.
Values for classic cars are up 6% over the past year, and 193% over the past decade, according to the Knight Frank Luxury Investing Index.

The Hagerty Price Guide predicts $378 million in total sales from the Monterey collector car auctions next week, spread across 1,400 vehicles on offer from six different auction companies through the Monterey peninsula leading up to the Pebble Beach Concours dElegance.
David Paul Morris | Bloomberg | Getty Images

Classic car insurance company Hagerty is going public via a special purpose acquisition company, in a deal valued at more than $3 billion.
The merger with Aldel Financial will provide stock market investors with a way to invest in the fast-growing classic car market, which has seen a huge run-up in valuations and popularity in recent years. Values for classic cars are up 6% over the past year, and 193% over the past decade, according to the Knight Frank Luxury Investing Index.

Aside from offering insurance, Hagerty has also launched a classic car rental business, called Hagerty DriveShare, and has acquired events and other classic car related businesses, including valuation tools, memberships and specialty content for car enthusiasts.
Classic car prices have benefited from the pandemic, as a new wave of investors started acquiring classic cars online through sites like Bring a Trailer Auctions, which is now owned by Hearst Autos. At Monterey Car Week, which wrapped up Sunday, total auction sales for classic cars were up 35% over 2019, to $345 million.
“Covid actually accelerated certain people’s interest in cars if they had it before,” Hagerty CEO McKeel Hagerty told CNBC. “You know, when you’re working from home and maybe you don’t have all the choices to travel and do all the different things, cars were an easy choice for people to make. You could go out and have a fun drive, whatever car you had.”
Hagerty said it insures more than 2 million vehicles globally and has partnerships with nine of the top 10 U.S. automotive insurers. The company estimates that the market for classic cars and specialty cars is more than 43 million vehicles.
The deal with Aldel includes a $704 million private investment in public equity, or PIPE, led by insurer State Farm and Markel Corp. The merger is expected to bring $820 million of gross proceeds to the merged company.
Aldel, which raised $115 million in its April initial public offering, was founded by Robert Kauffman, a co-founder of Fortress Investment Group and a racing team owner and driver. After the deal closes, the company will start trading on the New York Stock Exchange under the ticker symbol HGTY.

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Check out the companies making headlines before the bell:
Lowe’s (LOW ) – The home improvement retailer reported an adjusted quarterly profit of $4.25 per share, beating the consensus estimate of $4.01. Revenue beat forecasts, and the same-store sales decline of 1.6% was less than the 2.2% decline predicted by analysts. Lowe’s also raised its full-year financial outlook, as spending by builders and professionals rose. Lowe’s rallied 4.3% in the premarket.

Target (TGT) – The retailer beat estimates by 15 cents with adjusted quarterly earnings of $3.64 per share, and revenue slightly above analyst forecasts. Comparable store sales rose 8.9%, slightly above the 8.8% consensus estimate. Despite beating analyst forecasts, Target shares slid 1.8% in premarket trading.
Krispy Kreme (DNUT) – The doughnut chain fell a penny shy of Street forecasts with an adjusted quarterly profit of 13 cents per share, though revenue did beat estimates. Krispy Kreme also gave a better-than-expected revenue forecast, based on projected strength from online ordering and new menu items. The stock added 2.9% in premarket action.
Alcon (ALC) – The maker of eyecare and surgical products surged 9.8% in the premarket, after reporting better-than-expected quarterly results and raising its full-year guidance. The quarter marked the debut of Alcon’s Vivity intraocular contact lens, which analysts say will help drive sales growth.
Moderna (MRNA), BioNTech (BNTX) – Moderna rose 1.6% in premarket trading while BioNTech gained 1%, ahead of an expected announcement by the White House calling for a booster shot for Americans already fully vaccinated against Covid-19.
T-Mobile (TMUS) – Following an investigation, the wireless carrier now says the personal information of about 7.8 million customers was compromised in a recent data breach. That included dates of birth, social security numbers and driver’s license information, although no financial information was stolen.

ViacomCBS (VIAC) – Shares of the media giant gained 2.7% in premarket action after Wells Fargo Securities upgraded the stock to “overweight” from “equal weight”. Wells Fargo said ViacomCBS is one of the players poised to benefit from industry consolidation and it is also impressed by the upcoming programming slate for the company’s Paramount+ streaming service.
BlackBerry (BB) – The communications software maker said it released software patches to fix an issue with older versions of its QNX operating system and has notified all customers. U.S. officials had said earlier yesterday that the software flaw could put cars and medical equipment at risk. BlackBerry shares gained 2.3% in the premarket.
Tilray (TLRY) – The Canada-based cannabis producer’s shares surged 8.1% in premarket trading, after striking a deal to buy $166 million in convertible debt of U.S. producer MedMen Enterprises. Canadian producers cannot yet directly own a U.S.-based marijuana business, but Tilray could be poised to benefit from the deal if and when U.S. laws change.
Agilent Technologies (A) – Agilent gained 1.9% in the premarket after the life sciences company beat top and bottom-line estimates for its latest quarter and raised its full-year forecast. Agilent said its metrics were upbeat across all its units and added that its non-Covid diagnostics business has recovered beyond pre-pandemic levels.

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Chinese President Xi Jinping led a meeting Tuesday that emphasized how the country would focus on moderate wealth for all, rather than just a few, state media said.
Planned measures included curbs on “excessive” incomes and encouraging the wealthy to give back more to society.
In his first public chairing of a meeting since late July, Xi also called for preventing major financial risks.

Chinese President Xi Jinping
Aris Messinis | Pool | Reuters

BEIJING — Chinese President Xi Jinping emphasized at a finance and economic meeting Tuesday the need to support moderate wealth for all — or the idea of “common prosperity,” which analysts have said is behind the latest regulatory crackdown on tech companies.
Significantly, the meeting was the first Xi led publicly since a two-week quiet period. Chinese leaders typically spend early August in secret political discussions at a resort in Beidaihe, about a three hours’ drive east of Beijing.

The meeting called for the “reasonable adjustment of excessive incomes and encouraging high income groups and businesses to return more to society,” state media said in Chinese, according to a CNBC translation.

Leaders also specified common prosperity does not mean prosperity for just a few and is not a form of equal distribution, state media said. Rather, progress toward the goal would occur in stages, the report said.
Delivering “common prosperity” has emerged in recent months as an underlying theme of Chinese political discussion. The term is generally understood as moderate wealth for all, rather than just a few. But it remains a vague, frequently used slogan.
Yue Su, principal economist at The Economist Intelligence Unit, said in a statement she expects authorities to be pragmatic in implementation.
“Considering that raising taxes on high-income groups and capital returns may curb investment and potentially lead to capital outflows, the Chinese government will not completely ignore the impact of redistribution policies on the economy,” she said.

She added that privatization will likely slow in public services such as education, care for the elderly or medical care, with authorities at the very least becoming more strict in monitoring prices and affordability.
Income inequality among China’s 1.4 billion people has increased over the last few decades. The top 10% of the population earned 41% of national income in 2015, up from 27% in 1978, according to estimates published in 2019 by Paris School of Economics professor Thomas Piketty and a team.
But the lower-earning half of the population has seen its share of national income fall to about 15%, down from about 27% in 1978.
This year, urban residents in the coastal city of Shanghai had an average per capita disposable income of 7,058 yuan ($1,091) a month, far higher than the 4,021 yuan for those in cities nationwide, and well above the 1,541 yuan for rural residents, official data showed.
The Chinese government has claimed it eliminated extreme poverty in the country as of the end of last year. That marked a first step to fulfilling the longer-term pledges of the ruling Chinese Communist Party, which celebrated its 100th anniversary in July.

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“Elaborating on the ‘common prosperity’ objective, China has affirmed its effort to rebalance the economy toward labor, tackling social inequality with redistribution, social welfare, taxes and inclusive education,” Morgan Stanley analysts said in a report distributed Wednesday, noting a target — “to increase the middle-income group’s share of the economy.”
Based on the top economic policy meeting, the analysts said they expect additional measures to support economic growth, such as a cut to the reserve requirement ratio.
Data for July showed China’s economic growth slowed more than analysts’ expected, including figures on spending by individual Chinese consumers.
However, economists have noted that growth is not as important for Beijing this year as tackling long-term problems such as a buildup of debt and risks in the vast real estate market.
“Finance is the core of the modern economy, with ties to development and security,” CNBC’s translation of state media said, citing Xi’s remarks at Tuesday’s meeting. “It must follow the principles of marketization and the rule of law, and coordinate the prevention and resolution of major financial risks.”

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