Many on Wall Street turn to the “boredom market hypothesis” to explain the stunning rally of the past year: Bereft of travel and other pursuits, stimulus-check recipients gambled on hot stocks ranging from GameStop to electric-vehicle startups. As economies reopen, investors will need to grapple with the consequences of more people spending their checks outdoors.
It has been two weeks since the Treasury Department started sending $240 billion worth of electronic payments to households. Spending on Chase credit cards has jumped and is just 1.6% below its pre-Covid trend—compared with a 40% fall last March—JPMorgan Chase data showed this week.
This time, though, the stimulus isn’t filtering through to the stock market.
Daily equity purchases by individual investors have remained stable at around $11 billion in recent weeks on a 10-day rolling basis, data from flow tracker VandaTrack shows. This is sharply different from what happened in April 2020, when checks immediately led to a jump in retail flows, or January of this year, when the impact was also clearly noticeable two weeks in.
Both amateur and professional money managers need to pay close attention. In a paper published this week, researchers from the Swiss France Institute found that individual investors had a disproportionate market sway versus institutional ones during the second quarter of 2020 because they reacted more to price changes: Every dollar going into zero-fee investing application Robinhood caused a $5 increase in equity capitalization.