US retail investors poised to deploy stimulus cheques in stocks

Retail investors, who are playing an increasingly large role in the US stock market, are planning to deploy a significant proportion of upcoming stimulus cheques in equities, according to a poll that highlights how expansionary fiscal policy is a boon to Wall Street.

Democrats in Congress last week pushed through a $1.9tn spending plan that included a third round of direct payments to Americans, who will receive up to $1,400 per person depending on their income and tax filing status.

Deutsche Bank’s survey of online brokerage account users showed that they planned to invest about 37 per cent of their stimulus cheques in the stock market, with the figure fluctuating by age and income level.

“ . . . it’s worth highlighting that a large amount of the upcoming US stimulus cheques will probably find [its] way into equities,” said Jim Reid, research strategist at Deutsche Bank. “Behind the recent surge in retail investing is a younger, often new-to-investing and aggressive cohort not afraid to employ leverage,” he added, indicating these retail investors use borrowing to magnify their potential returns and losses.

There was other evidence to suggest that Americans will plough some of their stimulus money into stocks.

A recent Household Pulse survey published by the US Census Bureau indicated that about 15 per cent of the people who received a stimulus payment in the previous seven days — or who lived with someone who received a cheque — were putting at least some of the money towards savings or investments.

Respondents also said they were using the cash to buy food and household goods and pay off bills, among other things.

Analysts at Bank of America predicted an uptick in trading with another round of stimulus and said some of the new activity in retail investing was here to stay.

Based on the results of the Deutsche Bank survey and early versions of the Democrats’ plan, the new bill would give investors about $30bn in cash to spend on stocks, Reid estimated.

“Stimulus cheques could accelerate the large inflows into US equities seen in recent months after many years of weak flow data,” Reid said.