Meta's Muse Agent Sank Schwab and Allstate 5% as Nasdaq Hit a Record

On Monday the market went looking for Muse's winners and found Intel, Arm and AMD.

On Tuesday it went looking for the losers.

Charles Schwab fell more than 6% intraday and, according to reports, closed down 4.86%. Allstate lost 5.40%, Progressive 2.56% and JPMorgan 2.85%. Planet Fitness was down more than 10% at one point.

The same day the Nasdaq rose 0.45% to 27,244.28, its second record close in a row. The S&P 500 was flat and the Dow fell 0.36%.

What the Decliners Have in Common

The list holds a brokerage, two insurers, a gym chain, two travel sites and a telecom carrier. Expedia and Booking fell between 3.7% and 5.4%, Verizon 2.8%.

Their businesses look nothing alike. Part of their revenue comes from the same place: customers who don't check.

According to Bloomberg's report, the scenario investors priced is this: an agent like Muse moves the user's cash to a higher yield, cancels unused memberships, renegotiates phone plans, switches insurance when it finds a cheaper policy and books travel without passing through an intermediary site.

Goldman Sachs's trading desk wrote that sectors relying on recurring bills, add-on fees and customer passivity are the most exposed.

Meta has not said which of these tasks Muse performs today, or at what scale. What was priced is a possibility.

The Product Was Never the Product

It was the customer's inattention.

Schwab is the clearest case. Idle cash in a brokerage account is swept by default into the firm's bank. The client earns a low rate, the bank invests the money at a higher yield, and the spread becomes revenue.

Schwab's second-quarter release shows bank deposits of $249.7B, a net interest margin of 3.00% and quarterly net interest revenue of $3.357B. Total revenue was $7.07B; interest income is close to half.

The hit is proportionally larger at the profit line. No expense shrinks to offset the lost interest income, so nearly all of it comes straight out of pre-tax profit.

Insurance works the same way through a different line. Policies renew automatically, and price increases tend to land on customers who never re-shop. At a gym, the member who pays $10-$25 a month and never shows up is the most profitable one.

The Part That Doesn't Fit

Muse doesn't explain the whole decline.

The Fed raised rates to a 3.75%-4.00% range on Sept. 16. At higher rates clients move cash to better yields on their own; Schwab's client cash as a share of assets fell from 9.9% to 9.0% over a year. That process runs without any agent.

Allstate reportedly disclosed $748M in pre-tax catastrophe losses from 21 weather events in August. Booking is down 18.6% in September; an EU court blocking its eTraveli acquisition and oil above $100 came earlier.

Schwab also runs its own money market funds. If cash moves from one pocket of the firm to another, revenue doesn't go to zero; it shrinks to a smaller fee.

On the other side, Muse's scale is still unknown. Meta rose 11% on Monday and slipped 0.41% on Tuesday; it has not disclosed paid subscribers.

What Is Left

The financials index fell to its lowest level since July. The Nasdaq set a record the same day. Money moved between technology and traditional finance; a case of sector rotation.

The chart below shows the S&P 500 over the past month; the index's flat line hides the divergence inside it.

For Schwab, the 1.4 million new accounts and $120B in core net new assets from the second quarter are still there. What changed is the assumption about how long the cash in those accounts will sit idle.

Sources: Stock moves come from Investing.com and TradingKey accounts of Bloomberg's Sept. 22 report; closing figures differ across sources depending on intraday timing. Schwab's deposit, margin and revenue figures are from the company's July 21 second-quarter release; the 25-basis-point sensitivity is as reported by Quiver Quantitative. Index closes are from Yahoo Finance and Invezz. The deposit scenario is a hypothetical calculation, not a forecast.