By Lewis Krauskopf
NEW YORK (Reuters) – A portion of President Joe Biden’s coronavirus relief package is about to end in the stock market and could boost GameStop and other actions taken by active individual investors on online social media forums.
The aid package, which is about to be sanctioned at the end of this week, is expected to provide $ 400 billion in direct payments of $ 1,400 per person, helping individuals who earn less than $ 80,000 annually and couples who earn less than $ 160,000. The government should be able to start delivering checks almost immediately as soon as Congress finalizes the bill and Biden signs it.
“I really think you will find that a lot of that stimulus money will end up in the market, and I think if anything is a bullish catalyst,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.
A Deutsche Bank survey of 430 retail investors last month found that, on average, they plan to put 37% of any stimulus check directly into stocks.
At that rate, the value of the most recent package that could go into stocks ranges from $ 25 billion, if only traders with online accounts spend money on stocks, to up to $ 150 billion, if all stimulus recipients spend their checks on market in the same proportion, according to Deutsche Bank strategist, Parag Thatte.
US equity funds have recorded nearly record inflows of around $ 15 billion a month, “so the incremental flows from stimulus payments can be considerable, especially if implemented quickly,” Thatte said in an email.
Despite a recent downturn in stocks, including a 10% correction on the high-tech Nasdaq, the S&P 500 benchmark is close to record highs and has risen more than 70% since lows during the pandemic rages in March 2020.
If stimulus payments flow into the stock market, they may end up disproportionately going to GameStop or other stocks favored by active retail investors on social media platforms.
Frederick said that young adults tend to be at the bottom end of the income brackets and are therefore more likely to receive stimulus payments, and that younger investors are more inclined to invest in so-called “meme stocks”.
GameStop’s stock was soaring earlier in the week after news of the video game network’s e-commerce strategy, while other stocks favored by retail investors on forums like Reddit’s WallStreetBets were also rising.
There was some evidence of enthusiasm for stimulus among investors on social media platforms. On the popular WallStreetBets forum, an account called “IwantSpaceX” posted: “Let’s get our Stimmy checks!”
Stimulus payments can add fuel to the interest of individual investors who are already rising, with the COVID-19 pandemic leaving Americans with more time in front of their computers or smartphones.
Goldman Sachs’ strategists recently raised their estimate of net equity demand for households by 2021 from $ 100 billion to $ 350 billion, reflecting “faster economic growth and higher interest rates than we had previously assumed, additional payments of stimulating individuals and increasing retail activity in the beginning of 2021 “.
“We expect families to be the biggest source of demand for stocks this year,” Goldman strategists said in a note.
TD Ameritrade brokerage saw nearly 1.76 million retail accounts opened from January to September 2020, a record for the company in the first nine months of the year.
“People have time, they are interested and now they are really starting to understand what they are investing in,” said JJ Kinahan, chief market strategist at TD Ameritrade. “You really started to see the interest of the individual investor in a way that we have never seen before.”
(Reporting by Lewis Krauskopf; Editing by Megan Davies and Aurora Ellis)