Robinhood Drops on S&P Snub—Is a Bigger Pullback Coming?

Shares of Robinhood Markets Inc. (NASDAQ: HOOD) are down more than 5% after the stock was denied entry into the S&P 500 index. The stock had rallied more than 30% in the month leading up to the decision on hopes (and likely expectations) that HOOD stock would be added to the index as it rebalanced.

The options chain for Robinhood showed bullish sentiment with a high concentration of upside calls. However, that sentiment is flipping, and traders now believe the stock could be headed to around $57 by June 13. That’s about 10% above the stock’s 50-day simple moving average.

At that level, it would appear to be a slam-dunk buying opportunity for a stock that was getting frothy for many investors. However, investors should understand several significant correlations behind the stock’s recent price action.

HOOD Stock Has a Strong Correlation With PLTR

As a financial technology (fintech) company, Robinhood is compared to other finance stocks. However, at its core, the company is a software company and trades more in line with technology stocks.

In fact, many investors who own HOOD stock also own shares of Palantir Technologies Inc. (NASDAQ: PLTR).

Palantir was another stock that had to wait its turn before being included in the S&P 500. Each time the stock was turned away, the stock dropped about 10%.

However, that’s also been the case for stocks such as Coinbase Global Inc. (NASDAQ: COIN) and Tesla Inc. (NASDAQ: TSLA), each of which had to wait its turn to be added to the index. That would suggest that investors may have further to fall in the short term.

Where Robinhood and Palantir Are Alike

Sentiment for HOOD stock among retail traders has mirrored that of PLTR stock. In fact, over the last three months, HOOD and PLTR have a correlation coefficient of 0.97%. That means the two stocks tend to move in tandem. That’s not surprising. Both stocks are popular among retail investors because of their growth-oriented narrative fueled by technology.

Diverging analyst sentiment is another area where you can see similarities between PLTR and HOOD. For example, on the day after the S&P announcement, the Robinhood analyst forecasts on MarketBeat showed oneprice target upgrade from Deutsche Bank from $70 to $85. However, Redburn Atlantic downgraded the stock from a Hold to a Sell with a price target of $48.

That wide range of sentiments brings up another point. The two stocks also compare in the overarching belief that they are overvalued. While HOOD stock doesn’t appear to be as egregiously overvalued as PLTR, it’s still trading above its historical averages, particularly in its price-to-sales (P/S), which is above 20x and price-to-book (P/B) ratio, which is around 8x.

Institutions Already Love HOOD Stock

However, while Robinhood and Palantir have similar traits, the stocks are different and should be treated as such.

One key area where Robinhood and Palantir differ is the level of institutional investment. Institutions largely ignored Palantir before its inclusion in the S&P 500. Since its inclusion, only 45% of PLTR stock is owned by institutions.

By contrast, HOOD stock had 93% institutional ownership as of June 9, 2025. This means the stock has broader support in many passive funds, negating one benefit of inclusion in the S&P 500.

The One Correlation That May Matter Most

Robinhood debuted as a platform for cryptocurrency traders. However, the stock’s IPO in 2022 coincided with the beginning of the crypto winter, which lasted for the better part of two years.

However, in the last year, the HOOD stock performance clearly aligns with bullish cryptocurrency sentiment. In fact, the chart for HOOD stock shows a strong correlation with that of Bitcoin in the past year. Both began a bullish run in August of last year.

In its most recent quarter, the company reported crypto-trading revenue of $252 million. That was an increase of over 100% year-over-year (YOY). It also significantly outpaced the company’s revenue from options and equity trading.

That means that Robinhood could be more of a proxy for cryptocurrency than investors would like to admit. On the one hand, investors who are bullish on Bitcoin may want to buy HOOD stock at this level. However, after a 90% run-up in 2025, more risk-averse investors may want to wait for a more significant pullback before adding to a position.

Written by Chris Markoch

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