What will the American economy fix

ANALYSIS $ 1,400 American Checks Could Fuel Stock Market Boom

New York, Mar 11 (Reuters) - A check for $ 1,400 in the mailbox? It invites you to dream: a new refrigerator, have the pick-up repaired or pay off the next installment - there are plenty of opportunities for Americans to spend the money that will soon be coming into their homes as part of the $ 1.9 billion economic stimulus package. However, experts are now assuming that some of the recipients will not put the free money distributed by the state into consumer goods as planned, but prefer to rely on the booming stock market. "I think a lot of the stimulus money will go into the market and I think it will mostly be a catalyst for growth," said Randy Frederick, vice president of trade and derivatives at finance broker Charles Schwab.

The US Congress passed the aid package initiated by President Joe Biden - one of the largest in US history - on Thursday night. It is supposed to get the economy shaken by the corona pandemic going again, also by boosting private consumption with a rain of money. Every US citizen who earns less than $ 80,000 a year therefore receives $ 1,400. Tax experts believe the Internal Revenue Service (IRS) will be mailing the checks out later this month.

A survey by Deutsche Bank of 430 private investors last month showed that they want to invest an average of 37 percent of the funding directly in shares. Parag Thatte, strategist at Deutsche Bank, calculates that if only people with online accounts would spend this money on stocks, another $ 25 billion would flow to the stock exchanges. If all recipients of the “stimulus checks” put money into the stock market in the same ratio, up to 150 billion dollars would even be pumped into the stock markets. The US Dow Jones share index is already trading at a record level.

PANDEMIC FIRES ONLINE STOCK TRADING

Meanwhile, US equity funds are seeing record inflows of about $ 15 billion per month. “The additional funding from the stimulus packages could be substantial, especially if deployed quickly,” Thatte said. Goldman Sachs strategists recently raised their estimate of net household equity demand in 2021 from $ 100 billion to $ 350 billion. The reasons are faster economic growth, higher interest rates than previously assumed and additional economic payments to private individuals. "We expect households to be the largest source of stock demand this year," wrote the Goldman strategists.

The hype surrounding stocks like that of the video game retailer Gamestop, triggered by small investors, could provide an additional boost. Younger investors in particular organize themselves via social media platforms such as the popular WallStreetBets forum and thus drive up the price of certain stocks. Because young adults in particular are more likely to be found at the lower end of the income bracket and therefore more likely to receive the “stimulus checks”, this trend could be driven even further, says stock market expert Frederick. GameStop shares have been climbing again for days. Other titles popular in Internet investor forums are also increasing - such as the AMC cinema chain or the headphone provider Koss.

During the corona pandemic, people spend significantly more time at home in front of their screens. That also fueled online trading in stocks. Almost 1.76 million private customers opened an account with the broker TD Ameritrade from January to September 2020 - a record for the company. "People have time, people are interested, and now they are actually beginning to understand what it is they are investing in," said JJ Kinahan, chief marketing strategist at TD Ameritrade. "You really see an interest from the individual investor that we've never seen before."

with the collaboration of Lucia Mutikani; written by Stefanie Geiger, edited by Sabine Wollrab. If you have any questions, please contact the editorial team on 030 2201 33711 for politics and business or 030 2201 33702 for companies and markets

Our Standards: The Thomson Reuters Trust Principles.