STIMULUS MONEY GOES TO STOCKS
Abraham Sanchez knew exactly how he wanted to spend his stimulus check.
Like millions of Americans, he had begun dabbling in the stock market during the pandemic. So, soon after $1,400 from the federal government landed in his bank account earlier this month, Sanchez, a 28year-old trumpet player in Sacramento, Calif., moved all but $200 of it into his Robinhood online trading account. He then used most of it to buy 80 shares of AMC Entertainment, the struggling movie theater chain.
“I was like, ‘You know what? Whatever. I’ll give it a shot,’ ” he said. When the stock later rose after AMC announced it was preparing to reopen theaters in California, Sanchez gained $170 on paper. “It was kind of nice,” he said.
Sanchez is by no means wealthy. While the pandemic halved what he used to make from his gig in a brass band, he gets by because of his day job as a store manager. He worries that the pandemic might flare up again or cost him his job. But Sanchez, who lives with three roommates, did not need the stimulus money to make ends meet. So he was willing to gamble.
“If I were to lose a good sum of money, it wouldn’t be good,” Sanchez said. “But I’m willing to take the risk, you know, if it can put me ahead for the next couple of months.”
The speculative appetite of small investors such as Sanchez may seem at odds with an economy still reeling from a pandemic that has killed more than a halfmillion Americans, decimated jobs and snuffed out businesses and livelihoods. But one of the biggest tools deployed by the U.S. government to cushion the economic blow — stimulus payments — is also driving a huge surge in investing by small traders.
Analysts at Deutsche Bank recently estimated that as much as $170 billion from the latest round of stimulus payments could flow into the stock market. They conducted a survey of retail traders in which respondents said they planned to put roughly 40% of any payment they received — or $2 of every $5 — into the stock market. Traders between the ages of 25 and 34 said they expected to put half of their stimulus check into stocks.
For a decade before the pandemic, small investors accounted for roughly onetenth of trading activity in the stock market. But in the last year, they have become responsible for close to one-quarter, according to Goldman Sachs analysts.
All told, the federal government has doled out as much as $3,200 in direct payments to individuals who meet the criteria for stimulus money. Those payments helped many people stay afloat, but they also padded the incomes of some who never lost their jobs or their savings. And with travel halted, restaurants shut and normal activity nearly at a standstill, the stock market got a big cut of the money intended to restart the economy.
The result is that, as a whole, the American public has rarely been more financially secure. Between April and January, government transfers exceeded wage and income loss by about $800 billion, according to Fitch Ratings, leading to a boom in savings.
“I cannot stress enough how unusual this recession has been,” said Vincent Deluard, global macro strategist at StoneX, a brokerage firm. “This is the first recession in the history of mankind where people have gotten significantly richer than they had been at the beginning of the recession.”
The current crisis started differently. In February and March last year, the S&P 500 plunged nearly 34% as investors panicked.
The market began reversing course in late March after the Federal Reserve cut interest rates to nearly zero. At about the same time, Google searches for “how to buy stock” soared. Account openings at brokerage firms shot up. And trading in tiny amounts of stock options, such as Sanchez’s picked up.