Abraham Sanchez knew exactly how he wanted to conduct his stimulus test.
Like millions of Americans, he became confused about the stock market during the epidemic. Sanchez, a 28-year-old trumpet player in Sacramento, California, transferred 28 percent of his entire Robinhood online trading account right after $ 1400 was deposited in his bank account last week. He then used most of it to buy AMC Entertainment, a network of struggling cinemas.
“I was like, ‘You know what?’ Whatever it is. I will give it, “he said. When AMC announced last week that it was going to reopen theaters in California, Sanchez won $ 170 on paper. “It was kind of fun,” he said. Shares have fallen, but he is still sitting on a $ 120 paper dividend, not going to sell.
Sanchez is by no means rich. Although the epidemic halved what he was making from his performance in the brass band, he is making ends meet because of his day job as a store manager. He worries that the epidemic may break out again or cost him his job. But Sanchez, who lives with his three roommates, did not need incentive money to make ends meet. So he was ready to play.
“If I lost good money, it would not be good,” said Sanchez. “But I’m willing to take a risk, you know, if it can push me in the next few months.”
The speculative appetite of small investors like Sanchez could run counter to an economy still plagued by an epidemic that has killed more than half a million Americans, cut jobs, disrupted businesses and livelihoods. But one of the biggest tools used by the US government to stem the tide – stimulus payments – is boosting huge investment in small businesses.
Deutsche Bank analysts recently estimated that $ 170 billion could flow into the stock market from the recent round of stimulus payments. They conducted a survey of retailers, which showed that they plan to list about 40% of any payment they receive, or $ 2 to $ 2 for each stock exchange. Traders between the ages of 25 and 34 say they expect to invest in half of the promotion check.
“It could lead to a bit more market obsession,” said Patrick Fruzzetti, CEO and Partner of Hightower Advisors. He said “incentives” that use the popular online term for incentive checks would go into people’s trading accounts, “they will exchange”.
A decade before the epidemic, small investors accounted for about one-tenth of the stock market. But over the past year, they have accounted for about a quarter, say analysts at Goldman Sachs.
Individual traders were behind GameStop’s sudden rise in the value of their troubled video game retailers this year, causing some of Wall Street’s biggest retailers to suffer losses. Their trading helped push the S&P 500 up almost 80% since it closed in March. They have even raised the price of Bitcoin and other cryptocurrencies.
Everyone says that the federal government has allocated $ 3,200 in direct payments to individuals who meet the incentive money criteria, starting with $ 1,200 in inspections under the CARES Act last April. These payments helped many people stay afloat, but they also contributed to the income of people who never lost their jobs or savings. Travel was canceled, restaurants were closed, normal operations were almost deadlocked, and the stock market received a huge reduction in the money needed to restart the economy.
The willingness of millions of Americans to use federal emergency aid as money for profit speaks volumes about the unique nature of the current economic downturn – the government’s response to it.
Although some 9 million jobs have been lost since the epidemic began, those losses have been unevenly distributed. Low-paying industries, such as bars, restaurants, and tourism, which depend on large gatherings, have borne a heavy burden, while well-paid jobs in the professional services sector are stable as people move from home to work.
For the sake of speed, however, the federal bailouts were largely targeted, making little difference between those who lost their jobs and those who were financially healthy. The result is that American society as a whole has rarely been more secure financially. Between April and January, according to Fitch Ratings, government transfers exceeded wage income losses by about $ 800 billion, leading to a surge in savings.
“I can not stress enough how unusual this decline is,” said Vincent Dellard, global macro-strategist at StoneX. “This is the first fall in human history where people have become much richer than they were at the beginning of the fall.”
Usually, during economic downturns, people cling to cash, reduce the cost of non-commodities, and remain cramped until there are no signs of recovery. Usually stock prices suffer. For example, during the 2008 financial crisis, the S&P 500 collapsed almost 57% from its peak to March 2009. It took four years for the index to return to its previous peak.
The current crisis also started this way. In February-March last year, the S&P 500 fell almost 34% as panicked investors traded stocks. The market began to change in late March after the Federal Reserve kept interest rates close to zero and resumed programs that pushed money into financial markets.
Big Wall Street investors, comforted by the Fed’s move, immediately went public. But there were miniatures next to the dots.
In March, Google “how to get shares” searches rose. Brokerage account openings have increased. The small number of stock options, which is the favorite of the retailer, was taken. In recent years, the transition from the brokerage industry to the commission-free trading model, initiated by Robinhood, the app of choice for young investors, has helped boost prosperity. So did social media, which allowed millions of homeless people to explore stock trading ideas, exchange tips, and brag about their profits.
“My excitement threw me into the stock market. It was a damn, beautiful morning,” trumpeter Sanchez wrote on Twitter on Monday.
The Treasury Department began distributing the final round of payments over the weekend, and 85% of US households will eventually receive them. The last period follows the payments in April-January, when a total of more than $ 400 billion was sent.
For Wilmington, Delaware, 25-year-old Victoria Brown, who has a secure job in government, a $ 1,400 incentive check is more of an opportunity than a lifeline. He has already transferred the money to his Robinhood account and plans to use part of it to buy the shares of the animal company “Live Animals”, which owns 1000 shares.
Brown said his approach to the stimulus was as follows. “How can we borrow this $ 1,400 or $ 1,600 last year to do something to make more money with it?”
In a recent post to clients, JPMorgan market analysts found that the intensity of retail trading in the stock option market “correlated with previous rounds of US stimulus inspections.”
In April, more than $ 3 trillion in government transfers were poured into American bank accounts, mostly through $ 1,200 checks. The S&P 500 rose almost 12.7% that month, down from a 12.5% decline in March last year.
Nearly $ 2 trillion in state transfer payments were sent to Americans in January after an additional $ 600 stimulus check received in December. Retail activity exploded that month. The adoption of the Biden administration’s US bailout program, with its latest boost, could spur another wave of retail sales.
Andre Pierre is waiting for his test. Living in Brooklyn with his full-time parents, he plans to use some of it to buy shares.
“I do not really have accounts,” said Pierre, 25.
He started trading in October after watching the market rise for months. He started with electric vehicle stocks such as Nio and then transferred his shares to Apple. He now looks at several stocks in the marijuana industry.
“It’s a hobby, you know?” he said. “I love stock trading!”