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New York stock traders watch stocks drift near record highs last week. Photo: Colin Ziemer / New York Stock Exchange via AP
Katherine Greifeld, Claire Ballentine and Vildana Hajric
This is what happened in the market at the time when the US government received $ 600 earlier this month ) sent to the people. The volume of the Penny share skyrocketed. A company that sounds like a word Elon Musk tweeted rose 1,100 units. Tesla added $ 130 billion, IPOs doubled, and options trading exploded.
Coincidence? Maybe – although many people doubt it. You can’t help but notice how small-to-spend traders pop up around almost every market spectacle these days. Now, more federal aid could be on the way, and the Wall Street pros are bracing themselves for what’s next.
« When the extra $ 1,400 hits the same income level as before, we will most likely see additional speculation in stocks that could inflate an already existing bubble, « said Peter Cecchini, founder and chief strategist of AlphaOmega Advisors, said in an interview. When it comes to people with below-average incomes, Cecchini said, « Speculation will be less likely ».
That may be, but data suggests anyone who gets the boost is more likely than those to get it to market who don’t. Across all income groups, recipients traded around 30 percent more in the first 10 days of January than in early December, data from Envestnet Yodlee shows. Trading in people with an annual income of less than $ 75,000 who received payments increased 53 percentage points.
President-elect Joe Biden has a $ 1.9 trillion relief plan , 57 trillion euros) – a lifeline for states and cities. More than 150 million Americans would be eligible for a direct payment of $ 1,400, on top of the $ 600 payments approved in December.
The amounts would end up in bank accounts at a time of mania in the market. The volume of penny stocks has consistently exceeded 40 billion shares a day recently, six times as much as a year ago. Day traders venture over the counter into the speculative over-the-counter markets. The options market was the second biggest day for bullish stock calls this week.
Data from Goldman Sachs shows that a basket of retail-favored stocks is up 10 percentage points since late December, and both the S&P 500 and the S&P 500 outperformed the returns of favorite hedge funds by more than nine percentage points.
Nobody says more stimulus is not needed. Friday was a strong reminder of the economic burden of the pandemic. Data shows US retail sales surprisingly fell 0.7 percentage points in December. A day earlier, jobless claims data showed that 965,000 Americans had applied for unemployment benefits in the past week – the biggest increase since March.
Given the number of Americans eligible to receive the payments, some of the $ 1,400 will – Checks inevitably end up in the pockets of people who either save them or invest them instead of spending them on the essentials. Such was the case of Ava Frankel, 23, from Boston, who works in the financial services sector.
« I told my friends that if you want to spend your stimulus check on shoes, you might as well put it in Robinhood « , said Ms. Frankel in an interview. « The $ 600 check was just something special that I didn’t need, so I just threw it on the stock market. »
Ms. Frankel stuck to a trend that is becoming symbolic of the euphoria in the markets: Special Purpose Acquisition Company. She invested all of the stimulus payment in Churchill Capital Corp IV, a blank check firm that is allegedly in talks with electric vehicle maker Lucid Motors.
Should she receive a check for $ 1,400, Ms. Frankel said she would consider it Check to use for trading too, depending on what’s going on in the markets. « I would love to see a retreat in the tech space as I want to expand my positions in the tech names, » said Ms. Frankel / p> If any of the millions of Americans who are supposed to receive payments do the same, the sum could inflate what some say is already forming, said Logan Capital Management.
« If in financial markets There is a bubble to some extent, these checks are helping because I think they’ll chase performance, « said CEO Chris O’Keefe.
» You used to add money to the economy and the people would go n out and bought things – cars and furniture – now it seems to amplify what’s going on in the financial markets. «
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