Robinhood continues rally ahead of S&P 500 rebalance

Shares of Robinhood (HOOD) are trading up again on Friday ahead of tonight’s S&P 500 rebalance, marking the sixth consecutive day of outperformance for the stock. Earlier this week, BofA had pointed out that it saw Robinhood as “a prime candidate” to join the S&P 500. This is not the first time a Wall Street firm has named Robinhood as a potential pick. For the March rebalance, Barclays had already included Robinhood in its list of likely candidates for inclusion in the S&P 500. 

PRIME CANDIDATE: After having hosted a quarterly update meeting with BofA’s Emma Huang and the firm’s Index Team in front of the S&P rebalance due on Friday, June 6 at 5:15 pm, BofA views Robinhood as “a prime candidate” for the S&P 500 with the next rebalancing. The firm views Cheniere Energy (LNG), Flutter Entertainment (FLUT), Veeva (VEEV), Carvana (CVNA), Ares Management (ARES) and AppLovin (APP) as other top candidates for additions and views Interactive Brokers (IBKR) as “a top migration candidate” from the S&P 400, BofA added. For Robinhood or Ares, which aren’t a part of the S&P 400, the firm notes it would expect “significant buying activity” from passive funds.

The S&P 500 and Russell 1000 are the two major benchmarks for BofA’s large cap long only-clients and when companies are added, the firm says “we experience significantly higher interest from long-only portfolio managers which are essentially now forced to cover them and make a call.” Additionally, ETFs that track these indices experience consistent net inflows which cause market-makers to continuously buy shares in the holdings of these indices as they create ETF shares, it adds.

OF NOTE: Earlier this year, Barclays said it saw many potential candidates for S&P 500 inclusion as part of the March rebalance in the U.S. brokers, asset managers and exchanges group. The firm saw seven of its stocks as potential candidates for S&P 500 Index inclusion: Ares Management (ARES), Coinbase (COIN), Robinhood, Interactive Brokers (IBKR), LPL Financial (LPLA), Blue Owl Capital (OWL), and Tradeweb Markets (TW). The firm pointed out that stocks selected for index inclusion typically experience 7% gains into the first day of trading, making tonight’s event a potential catalyst for shares.

PRICE TARGET: In morning trading, shares of Robinhood have gained almost 3%, trading at $74.38.