Our retail customers did what they did in 2020. They stepped in and they were kind of aggressive in buying the dip and they were handsomely rewarded. When we talk to the media because they always reach out to us in times of volatility and say, 'Oh my gosh, what are the we're the face of retail customers.' Oh, doesn't that scare you that they're buying the dip? And my response is they're 30 years old. They should be buying the dip. They should be super aggressive at this age because they have 40 more years of investing. And if I look at historical returns, let's call it 9%. Sure, they might have 5 years where they don't make any money, but in the long run, it's the right thing to do.
Welcome to the Risk Reversal Podcast. I am Dan Nathan. That is Guy Adami. Guy, we have a very special guest. We've gotten to know Steph over the last I want to say couple of years. She is the CIO. That's Steph Guild at Robinhood. You run Robinhood Strategies. You are a strategist. You've been very helpful to us figuring out the markets over the last year and a half or so. So Steph, thanks for being back at the podcast.
Thank you for having me. I always enjoy.
And before we get granular here and her work, let me say this. This is someone whose star is clearly on the rise because I see more and more of her on the different outlets. And you know what? They're smart to put her on.
See that? We can be complimentary coming from Guy.
But by the way, this is a really interesting podcast because not only are we going to get Steph and her outlook for 2026, we're going to look back on some 2025 stuff, some of the things themes that she thinks are very important, how they are allocating resources in our own strategies, but also after the break when we're done with this, we have Steve Quirk. Steve Quirk, as we just call him what Guy?
He's just Q. I mean, he's a lot more than just Q, but we just like to refer to him as Q, as folks in the markets have been for a very long time. He is the chief brokerage officer at Robinhood. We talk a lot about some of these new products you've been rolling out. I've been trading them on the Legend platform. So, obviously futures, love, we trade a lot of options there. Event contracts. So, we dig into that and we'd love to hear a little bit what you think of that product, too. So, Guy, where do you want to start with Steph here?
Well, this is where I like to start because sometimes people seemingly have a crystal ball. And beginning of the year, Steph's target for the S&P was 6,500, but she said you could potentially you could reasonably see 6,750 at the end of the year. As I'm sitting here, magically, that's exactly where we are. So, my question to Steph is, you know, how did you sort of foresee this? And more importantly, what within that 6,750 made sense and what were some of the outliers that you really didn't see coming?
I saw a lot of growth obviously coming from like the tech space and AI. And I just like to look at earnings expectations and then apply a value like do I agree with that or not? And I actually spend time looking at each sector's earnings expectations and then adjust them based on like what I actually think they could do. Apply a multiple to it and get to a number. And I got to 6,500 on that. I could have put a little higher, but because if you think about this time last year, we were facing a new president, right? And we didn't know, we knew tariffs could be coming. We didn't know to what extent. And so I pulled it back a little bit from where I thought it could go without them. And then obviously tariffs hit and the markets tanked and then they came back, right? They grinded back pretty strongly. We got to my target in September and the one thing that I felt like there was going to be some correction. We ended up having it in November but it was short, right? What I didn't expect is that there would be a lot of debt being taken on in the AI space and then that would create some skepticism in the space. And so we just thought there would be three stages of AI. It would be the hardware part, the software part, and then seep into the economy. Not all in one year, but that's kind of where I thought we were getting into the September into the software side. But I was wrong about that. The hardware side went on for way longer. And now because it's not just cash that's being used, but also debt and the private credit space started showing some signs. That's the part I actually didn't expect that is making me nervous for next year.
Yeah. And when you think about that spend and I think you do a really nice job kind of differentiating between this kind of buildout which has been hard hardware right when you think about the data center stuff there's a lot of stuff that's in power right but I think your point is like you were just maybe a little too early right so think about when agentic AI right when the folks in all these different industry I keep saying folks a lot of folks guy you made fun of me earlier for using that term it's kind of folksy but when you get a lot of these companies that are waiting to use this technology. They're waiting to spend there, right? And they want to increase productivity. They want to actually create better products and services for their customers. It's not there yet. I mean, and that's the thing that is likely to be the next leg of this trade. And so, as we kind of go in towards year end, and we know that these have again been huge drivers of market performance, of earnings growth, but also as it flowed through to GDP here, like maybe the next leg is in financials, is insurance, is you know, all of these. We're starting to see a guy's been all over the retail thing. Healthcare is going to be a big one. So, how do you think about that? Because might that be the kind of next leg of this trade?
Yeah. My call was in April. I thought that next wave was happening and that's why I was early on that. And so, I'm writing a piece that's going to publish today where I was like now I think it's actually happening. And I think the market's recognition of it started on October 29th when we had that initial pullback of 6%. I think it really is starting and that's when you have a new phase starting you have market jostling around going back to the old trend the new trend like no one's quite sure of it. But I think it's actually starting and that's why I think like a name like Salesforce it's been so disappointing because I think they should be benefiting from all this but they haven't yet but I actually think that is going to be the next leg but it takes time to learn how to do it in a way where you're giving up control to another thing and can it do it in a high quality way where it doesn't ruin your business and that's what I think is taking a little time.
Well Guy you've been all over using agents right to do all sorts of things in your personal life.
Unbelievable. I mean I've really put them to work religiously here in the Morristown studios.
That's us being very facetious. I mean but there is one thing you know Guy is obviously never going to let an agent book his trip or pay these bills or do this forever. I just think you got to take the over when that's really going to happen because trust is so important, right? And it's going to have to be demonstrated over many many months, maybe quarters, maybe years and in sectors that are heavily regulated. The idea that you're going to let agents talk to each other, you know what I mean, and transact and that sort of thing. I think we take the over on that. I know the government is trying to make some federal rules about it. And maybe that will be helpful. A lot of states have made lots of rules and I think the feds here, whatever it is in the administration, they think it's probably better off to have one set of rules. But again, I'm just kind of taking the over Guy when agentic AI and I mean this sincerely, is going to be something that powers productivity and earnings growth. And I know that contradicts what I just said, but that is the next layer at least companies spending on that.
Yeah. And there's a lot of runway between here and there. And then the question then becomes a lot of these companies and the spend if they're not seeing the return on investment does that get ratcheted back and to a certain extent I think that's what we've been seeing over the last couple weeks. But you know my next question Steph and it sort of all is part and parcel to what we're just talking about. You nailed it this year. Let's talk about next year because your target for 26 is 7,300 in the S&P which suggests about a little less than 7% from where we currently are which you know suggests as you said earlier you're somewhat cautious. So speak to that.
Yeah, I'm just cautious because I think at least for now and my view can change obviously as new information comes, but I just think the largest companies aren't necessarily going to be the biggest winners and that is why I'm more tempered on the S&P as a whole. But I think you can still see higher returns in areas of the index that aren't as highly weighted, right? So, I do think the consumer and the affordability issues are coming to a head. They've been talked about for a while, this K-shaped economy, but I think they're coming to a head. And I do think it's going to be a bigger theme for the administration next year. And between that and whether you believe it or not, inflation data that comes out a little lower, you know, you do have a new Fed chair next year. I think there's just some wind at the back of some of these non-store retail brands that have been just demolished this year that I actually think are looking kind of interesting. And so Gap is something we've been owning, for example, for all year. We recently put on a position in Lululemon. It is up a lot since that time, but you know these are not without risk. And so I think it's kind of going back to the consumer maybe being strong and then like I said in spots of tech that aren't as big. It doesn't mean we hate every hyperscaler but it just means that I think you'll start to see a little more appreciation for value.
Yeah, I think your point about two retail names there. One is consumer discretionary, say Lulu, right? And the other is probably more of a staple, right? And so the valuations actually kind of reflect that. And I think in a K-shaped economy, you know, and again, execution is a huge part. One of the reasons Gap has come back, better execution, right?
And Lulu is like the opposite in a way, right? Like they've been disrupted by some trends maybe and miss.
And I would throw that into some degree execution, right? But you know, one of the things I just wanted to kind of double click on this a little bit. And so when you think about expectations for earnings, last week FactSet earnings insight blog, this is John Butters. He was talking about the S&P 500 is expected to report earnings growth of 14.6% for 2026, which would mark the third straight year of double digit growth. Mag 7 companies are projected to report earnings growth of 22.5% for 26 while the other 493 are expected to report growth of 12%. So what you just said you're less excited about that top 10 and you're more excited at least from a stock picking or a sector picking standpoint about the others. So if you're getting 12% growth of the 493, can you make a broad market call? You know what I mean? Getting to whatever your expectations are with just relying on the heavy lifting of the other four because that's a reversal of what we've seen last year.
A reversal although this past year you actually did see an improvement in the other 493. But when I was looking at it I went by sector and I saw tech 23% earnings expectations. I actually took that down to 18. And that's really what drove my expectation of 12% earnings growth for this year and then I applied a multiple to it to get to the 70. What did I say? 300 or something like that. But the multiple I had to apply was still not light.
I think it was like 22 times. Okay. But it's still not like it makes me uncomfortable because I feel like I grew up in a world where the average is 16 times and 18 or 19 is high. And so 22 I'm just like oh wow. But is that the new norm? Because are things more productive? Are, you know, because we're going into perhaps a lower Fed rate. And I actually think they're going to cut 25 basis points, which the probability did go up today. Or just went up this past week, I should say. But I think there's a case for things just being like I made slight adjustments to the rest of the different sectors in my analysis upward and then just a bigger cut down. But 12% earnings growth is not light in the history too. In the long-term history, 6% is average. So that's why I'm just a little more cautious in the biggest names.
All right. So since you brought it up in terms of multiples and different a lot of it hinges on Federal Reserve and you just mentioned that the odds for a cut have grown and that probably is going to happen. So let me say this. You know, last week we got a jobs number which I think was disappointing on through the lens of the unemployment rate which probably solidified the Fed's pivot back at Wyoming that they were more concerned with jobs and inflation. Then subsequently got a CPI number that was cool. People are going to sort of pick at it saying a lot of data is not in but let's just look at it at face value. What's your expectations for the bond market? Because a lot of people think back end of the curve is going to go down. I am not one of those people. Let's talk about bonds and the Fed and all those things that make this up.
Yeah. So, I expect another cut at the next meeting. Which is now I looked at prediction markets and you know it's been trending a little higher especially ever since the CPI. But I just don't see a way like I felt like the administration was like tariffs because you know he said I'm here because I want to get the deficit down. He said it multiple times. Now I feel like that's not even on the list of things to do. It feels like again my view of turning toward the consumer and turning toward the everyday person and using those funds in a different way. I don't know what's going to happen with the court cases too, right? Like that's another variable in there. My view like at some way or another they'll probably keep the tariffs. But I just think that the long end of the curve is going to be stuck there because there's no way you cut it you're going to get this deficit down materially and it's not like we're making best friends with every single other country. And so I'm just it makes me concerned that we're stuck at this four and a quarter area on the 10-year and then you do have the Fed that cuts because they do have to balance these two different things that are happening in the economy. And so that means that you have a steep yield curve and that's why we own regional banks in our portfolios. And I don't know what that's going to mean longer term, but I do think a higher long-term rate also means that stock picking should be rewarded over time because you don't have this tailwind like we actually did. The Fed did a study in 2023 from 1989 to 2019 40% of all US corporate profits were driven by interest rates and lower corporate taxes like lower interest rates and lower and you just don't have that. So that's why I think you have more CEO changes, you have restructuring capital.
Yeah. One of the things I think is being underappreciated for next year and you know last week the president held this prime time talk from the White House and speaking about affordability and I think it's one of those things that he's pulling very badly on. He's trying to blame it on the prior administration and every administration would do that. This is not a political comment one way or another but as you get into an election year and let's say you do have that unemployment rate ticking up towards 5%. Heck it's already at 4.6% right? Let's just say growth is, you know, 2.2%. I think that's expectations for GDP. That is right at the average over the 10-year period prior to COVID, right? Let's say 2.7% on that CPI number, which again, there's lots of puts and takes on that one way or another. We're going to get another CPI and a PCE before that next Fed meeting, right? You do have taxes going lower. You do have fiscal stimulus that's kind of kicking in as part of the bill. So there's a lot of things you could say, well if the Fed and the Fed CME Fed watch tool right now to your point is about 75% for another 25 B that's moved a bunch like 90 something. So then if you throw in okay the fact that let's say in January you know Trump appoints somebody who's going to do his bidding to the FOMC and let's just say you're seeing a merger of the Treasury and the FOMC. I mean, there's a scenario though where to Guy's point like rates just go higher. You know what I mean? Like you can take down the Fed funds, but rates go higher because let's say inflation doesn't really move a lot. Inflation expectations would actually likely go higher, right? If you have the inclination that you're going to have, you know what I mean, like all that sort of stuff. And we're already seeing QE, that sort of thing. So, it might be a really tough period. And there might be political pressure to lower interest rates dramatically, which is something that, you know, Trump's already saying that could be, as Guy likes to use this term, a witch's brew a little bit, right? And so talk about that. A lot of moving parts, but I think the election and then the new Fed chair and inflation sticking around and unemployment not going. I don't know if lowering 50 basis points or 100 basis points is going to do a lot to fix that.
No, I don't think it will. That's why I think it's one of those things that makes me think, okay, enjoy it for now because it may not lead to a good outcome in the longer term. I think there's so that's why we think the long end is going to stay where it is. It could even go up depending on if they're not allowed to have tariffs, like what happens with that? That means there's really nothing helping the deficit, potentially helping the deficit at all. And that will I think make bond investors even more nervous about our financial state. And then that has an impact on the affordability of houses and of credit card interest rates and everything else. And I think the only way I truly see interest rates going down is if we do have a bad recession and inflation expectations just come down and growth expectations come down and then you kind of have this flushing out of things. I don't wish that upon us, but I don't see another way right now. And that's why I think the Fed can cut, but the one thing I don't know if it's true. I may be a conspiracy theorist right now. I need to do a little more work. I did find a Reuters article on it, but apparently all the Fed governors typically it's like this nobody cares thing and it happens around the time when the new Fed chair comes in, but they went and voted themselves for the next term early. So that the people who the voting members are not all going to be doves. And apparently the administration is upset about it because now they can't control who's in it. So that was the one thing I was like oh maybe rates are going to not go down. There will be somebody there trying to counteract potential inflation pressures.
Let's talk about crypto. Because you know Bitcoin is having a tough time into the end of the year and it's become increasingly volatile in my and I know this is a volatile risk asset but there's been some orderly moves to the upside over the last year and a half you know we had the proliferation of ETFs right and that was a nice little catalyst right and then you had these digital asset companies right like these treasury companies and there was demand for Bitcoin and Ethereum that sort of thing and then you had the promise of clearer regulation right when the new administration was coming in and you know all of a sudden though I want to say over the last you know it really had this move to what 125,000 this is Bitcoin but since then you know it's gone back to below 90,000 there's not much of a rally it gets sold there's you know at least where Guy and I are sitting we think there's a potential for and it's probably going on and you just look at like a MicroStrategy and you see what's going on there's an unwind in this last leg of the thing that brought it up to 125,000. And so I'm just curious like how are your customers thinking about this? You know, you guys see more crypto flow than probably all of your biggest peers, you know, that sort of thing. Is this something that they are buying the dip on? Is it something that they still think, you know, is it beyond Bitcoin and Ethereum? Are you seeing this in other altcoins? Because obviously you run money. Is this something that you find attractive?
So, I'll answer the second question first, which is we do see the benefit of crypto over the long term, but we haven't had it in our portfolios. Just based on the time that we launched, which was March of this year, it had already gone up a lot and continued to go higher and then obviously has since dropped quite a bit. And I just was worried about what kind of volatility that would add to our portfolios in a time that felt kind of uncertain already and a lot of things had already rallied so we just didn't have it in the portfolios. But in terms of what we're seeing our customers do, I would say there has been buying has been relatively steady. We had a week or two where there was an uptick in sales, net selling I should say, and it was mostly the most traded is always Bitcoin, but the second place is changes. And actually in the last week or so, I'd say Ethereum and Ripple are the two competing for second place. Sometimes you see it's actually been mostly Ethereum and Ripple is number two. That are in and out all year. But this past week or so, net buying is back again.
Okay. And then over the last few months, this bifurcation between Bitcoin and gold, it's something that's pretty substantial. And I'm just curious, do you see your customers buying gold? Guy's made the point for years now that central banks are just like China and has been buying gold and selling our treasuries. I mean, it seems like it's a one-way trade there and you know, you have gold at prior all-time highs. Is this something that's sexy enough for your customer?
We haven't I've seen gold buying through the ETF, the gold ETFs, but I haven't it hasn't been like top of the list this year. So, I would say that our between the kind of like gold and crypto, our customers probably bias crypto in that sort of trade. But you did see an uptick and most of it was in the first quarter or so of this year versus later in the year.
So I'm glad Steph brought up gold. I'm glad you brought it up as well, Dan. The gold story is not over by any stretch. And as much as people want to say it's driven by the retail trade or the retail investor, that's part of it for sure. And I think people got excited when they see Costco selling out of gold bars within the first couple days of each month. The reality is it's all central bank buying, Dan. And we've talked about this for a while. And this year, which is about to come to an end yet again, we see record gold purchases from central banks. And this has been going on for the last four years, and I don't see it stopping anytime soon. And now silver's getting in on the party as well because I think people coming to the realization that as much as silver is sort of the maybe the stepchild of gold. It's not. It's an industrial metal that has important values and qualities in the world we currently live in. And I'll say it again, I think you're going to see triple digit silver early next year.
Yeah. And I guess the thing I would just say is I remember there was a time in I don't know a year a year and a half ago where the traders were trying to meme silver. You remember that? And so it is interesting to me though that you're seeing again this bifurcation between the risk asset which is crypto that a lot of folks were super geeked up about because of this asymmetric trade-off but then if you look at silver as Guy just mentioned you look at gold every dip has been bought in gold and now silver is just gone parabolic right and so then if you kind of just think about what Guy just laid out or the industrial uses of it and then you have the speculative aspect of it you know I guess it makes sense I'm not a buyer. I don't buy into bubbles, you know, that sort of thing. But, for whatever that's worth. All right, let's talk about event contracts because this is something I really feel like, and Q and I talked about this, and I'd love to get from your standpoint as somebody who's an investor. The whole idea here is that these might replace a lot of investing or trading instruments, right? Do you think in Robinhood Strategies at some point in the not so distant future you will be adding event contracts that could look like hedges rather than having puts, put spread, selling, call spread, you know, all that sort of stuff. And that's not something I gave a lot of thought to until Q started talking about it. I was thinking of it more as a speculative tool, you know what I mean? So, I'm just curious how you're thinking of it because you guys definitely seem to be on the forefront as it relates to an investing platform.
I absolutely think it's an additional tool and I absolutely want to put it into Robinhood Strategies. I think it works very well in a diversified portfolio. You just have to pick the thing that you have to do is what is the role that it plays and for me I would use it as a hedge. I would use it as a diversification tool. If I thought the Fed is going to cut in January, the probability was very low especially in the prediction markets and I was like oh this is kind of an opportunity to express that view because it's hard for me to express it any other way around an event. I can only be like okay I think the Fed's going to cut yield curve will steepen and I'll buy regional banks but that's like a muted instrument in that particular view so that's the way I think about it. And I think you can use it in personal life too. I live in New York City the mayoral race like you might vote for one person but if the other guy wins you know what like maybe you should vote like you can invest that way and say well I'm going to bet the other guy wins and I'm going to vote this way and it will be like my hedge against my vote. I actually think it's quite interesting in that way.
Let's go to Robinhood Strategies and some of the ideas you mentioned Lululemon. There's some other names in there. Growth at a reasonable price, value stocks, and you know, the Robinhood strategy is seemingly growing by the day in terms of assets under management. So, speak to that and how you're looking at some of these names.
Yeah, we're at 1.2 billion, a little over that now. And we've been allocating to GARP, so growth at the right price for months now. Because I just something about the way that I kind of started in the business and learned from a value investor that I still care about valuations. And so we started adding for example to healthcare in October because it seemed like it just wasn't rallying and we didn't understand why and that's where we do think AI can help. And we've seen examples of that for years from early adopters of AI. So we have things like Eli Lilly and Nera. In the consumer space is something newer in the last like week or two where we like On Holdings for example, which is the sneaker company. When we bought it, the stock was still down on the year. And we think they have a strong order book. We think they've managed through the tariffs really well. Their PEG ratio is only 0.7 times. So, if you look at their growth compared to their PE ratio, it's still attractive. And their earnings growth expectations, they're not super low. So, that's a risk. I always look at what do people think? I think expectations are everything. So, you have to think about that. But Lululemon is another example of that. And then internationally we used to own more international when the tariffs came in because we thought there will be deals and we picked where the countries we thought would care most about that. So Japan for example we thought they're very reliant on the US consumer especially with their autos so they'll have a deal. So, we went into currency hedged Japan because we didn't know what was happening with their central bank. Still don't understand actually what they're doing, that's like a crazy experiment, right? Because they're going back to economics, but they're going to raise rates because they have inflation for the first time in like decades, which is great for them. But we owned a lot more Japan and we cut that after there was a deal announced. And then we still like China Tech because I think if there's any place and it hasn't been working more recently it worked but it's still up for the year that can actually give the US a run for its money and I know some people feel it's unpatriotic which I understand that view but I'm here to make money for my clients. I actually think they are if they're not going to get the chips they're going to figure out another way to do it and they're a very industrious nation so it still seems attractively valued.
Yeah, you know, that's a great point because a lot of comparisons are being made to the late 90s the fiber build and into the internet. And obviously that created a very speculative investment bubble. What back then they did not have, it was not a two-horse race, you know. I mean, obviously China built this firewall and our companies were never going to be in there. They didn't have to spend to compete. And this technology is obviously a bit different. They are using open-source models. They are using to your point they don't have they have plenty of Nvidia GPUs but for the most part I think they're trying to make do with far less that's something that's being mandated by the government and you know all of this capital being spent by our companies hundreds of billions it's going to end up being trillions by the end of this decade it could all be for not if the Chinese are able to push around their open source models around the world that sort of thing so that's kind of a hedge in our portfolio too.
Yeah, I mean that's not a horrible way to think about it too. But we don't have to get into bubble or not. I mean, you don't have to get into the comparisons of the late 90s and what happened at towards the end of that. I mean, we all know that a lot of those great ideas, a lot of those businesses that were just too early ended up being huge, huge businesses. The same's going to happen here.
The one question I guess I have towards the end of the dot thing everything else joined the party whether it was 493 or something like that and that was the thing that really got antennas up by maybe a lot of investment professionals that missed a lot of the dot sort of thing. But that was like the last gas for this. And so when you think about your outlook for next year, you're relying on multiple expansion of that 493. Is that fair to say? And you know, because a lot of folks are using 23, 24 times. You're not, but if you're getting comfortable with that, that means that there's got to be a lot of heavy lifting of hundreds of stocks in the S&P 500. So I'm curious how you reconcile that because, you know, if we look at CAT is a great example. This stock has 3x the performance of the S&P off the low of the turbine. What's been pulled forward? You know, when you think about Micron and those results and that guidance that they gave what's been pulled forward, you know what I mean? So, that's the I to me I see less risk in a handful of these big hyperscalers. They're going to be fine. The stocks can come in 35%. Obviously, that'll weigh in the index, but what do you think of the rest of these sectors? And you've talked about this already, but if they were to go parabolic, if we see a lot of cat tractors, I think the market is really going to have a difficult time for returns, second half of 26 into 27.
