‘Stimmy’ Is Setting Stage for Next Wave of Retail Stock Frenzy
(Bloomberg) -- Money from the government is poised to rain down as soon as this weekend for most Americans. And while many cash-strapped families will use funds from the $1.9 trillion pandemic-relief bill to cover rent or past-due accounts, another cohort may use the $1,400 payments to ignite the stock market’s next retail frenzy.
“I probably will take about half of it to invest into stocks,” said Iyana Halley, a 28-year-old actor who recently appeared in NBC’s television drama “This Is Us.” The Los Angeles resident remains on the fence about which equities to buy, but has been keeping a close watch on social media and seeking guidance from a friend she trusts.
“I want to see what will make the most sense, where I can get the most out of my money,” Halley said in an interview. “I’m still new to the stock-market world, so trying to figure stuff out.”
The retail buying may come as soon as Monday, giving the Nasdaq 100 Index new wind after it fell into a correction earlier this month amid a crash for some of the market’s most speculative names. The checks “could offer a short-term ‘shot in the arm’ to a market that was otherwise looking run-down and vulnerable to a sell-off,” said Sam Stovall, the chief investment strategist at CFRA Research.
Individuals age 25 to 34 with online brokerage accounts plan to use about 50% of their stimulus to buy stocks, according to a survey this month by Deutsche Bank. Americans who earn as much as $75,000, or couples making $150,000, plus their children or adult dependents, qualify for the full $1,400 per person. Two parents with a dependent child would get a combined $4,200 injection.
“Stimulus checks will almost certainly drive more retail buying,” said Eric Liu, co-founder of Vanda Research, a firm that tracks retail flows in the U.S. “The social media attention has remained strong.”
Tyler Hopkins, a 26-year-old computer technician for a school district an hour east of Los Angeles, spent about half of his two previous pandemic stimulus payments on stocks including GameStop Corp. and non-fungible tokens. He plans to buy more shares of retail favorites when the latest payment hits his bank account.
“I’ve been buying crypto and stocks for a while now, but the stimmys helped pay some bills and I put the rest of them into investing,” Hopkins said.
For all the excitement that the stimulus payments are stirring up among younger traders looking to make a killing, investment professionals have been wringing their hands. They worry that unsophisticated newbies buying stocks they heard about from memes or online forums like WallStreetBets could take already stretched valuations even higher.
“You could say it’s like gasoline on a fire,” said Kimberly Woody, a senior portfolio manager at GLOBALT Investments. It’s “participation from a lot of folks that really just don’t know what they’re doing.”
The retail mania has been raging for almost a year now. The gamification of investing and consumers seeking entertainment during pandemic lockdowns led to massive surges in stocks generally shunned by the long-term investor community, from companies like Gamestop, AMC Entertainment Holdings Inc. and headphone maker Koss Corp. Those bets helped spark massive rallies that featured dizzying bouts of volatility.
Halley, the Los Angeles actor, is aware of just how dicey it is taking a flyer on the fringes of the stock market, so she’s hedging her bets. She plans to spend the other half of her stimulus on acting classes.
“I think with stocks or any kind of investment, it’s always going to be a risk,” she said.
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