How Are Stimulus Packages Driving The Financial Markets?

The third batch of US stimulus checks will be distributed to families who meet the income requirements. They will receive $1,400 for each member of the household, including dependents of all ages.

Today, we’re looking at stimulus cheques and how they are being spent. After that, we’ll dig into the markets and see what’s coming up this week. Let’s do this!

What are stimulus cheques?

Back in spring 2020, Congress passed a stimulus relief bill that granted $1,200 cheques to millions of Americans. The aim of the cheques was to simultaneously provide a safety net to those who needed it and to increase spending to reignite the flailing US economy. Depending on what side of the pandemic you were on, this money was either a nice windfall or a crucial life line.

Congress passed a second $2.3 trillion relief bill in December last year. It included $600 stimulus cheques for individuals earning up to $75,000 and couples earning $150,000. Taxpayers also received an additional $600 for each child under age 17.

But what happens if all that cash starts to burn a hole in your pocket? When you switch on the daily news to see more and more seemingly easy ways to make that money magically turn you into a millionaire.

Splurging in Stores

Whilst the stimulus cheque was a lifeline to many, to others it was an opportunity to purchase more electronics and gadgets.

At Walmart, Target, shoppers bought more TVs, electronics, gaming equipment and apparel. Walmart also saw increased demand for adult-sized bikes.

BJ’s CEO Lee Delaney told investors in 2020 that the company saw “relatively significant growth” in discretionary categories, including electronics and TVs.

At Best Buy, customers used their stimulus checks to buy computing and gaming equipment, Corie Barry, the company’s CEO, said on it Thursday earnings call.

“Like many other retailers, we saw sales benefit during the last three weeks of the quarter as customers undoubtedly chose to spend some of their government stimulus money on the products and services we provide,” Barry said.

Stores did however, see a rise in the purchase of staple foods especially dried and canned. This indicated that many were using their stimulus cheque to safeguard their household.

Investing stimulus to make more stimulus!

The incredible rise of the crypto market has created an unbelievably compelling argument for those that wish to jump on the bandwagon, stimulus cheque in hand.

Crypto’s entire market cap has risen by 144.5% since this time last year and 73.73% in the first couple of months of 2021 alone. It now amounts to over $1.7 trillion.

Crypto Market Cap, 2021

Source: CoinMarketcap

Bitcoin, a household name with universal notoriety makes up over 60% of that volume and rightly grabs all the attention. But there are now plenty of outlets encouraging people to put their ‘Stimmy’ cheques into the crypto. Like this Twitter account, for example, that tracks how much your original covid stimulus cheque would be worth if you’d invested it this time last year.

Source: Twitter

Notable crypto news portals like Cointelegraph are also fuelling the fire. Even highly-respected, non-crypto journos are peddling headlines like, ‘Second Stimulus Check: How Bitcoin Could Have Made Your First Worth Almost $5,000’.

What’s the impact on the markets?

Well, the CEO of crypto exchange Robinhood recently revealed that “over half” of its customers are first time investors. That should tell you something.

And it’s not just crypto. So far, the stock market in 2021 has come down to this primitive formula: the cheaper the share price, the more investment it receives. That’s a classic sign of retail trading, with day traders piling into cheap stocks, buoyed by their government grants.

According to software and data aggregation company Envestnet Yodlee, in May last year, securities trading was among the most common uses for stimulus cash. For many, trading was the second or third most common use for their bonus moolah, behind increasing savings and cash withdrawals.

Source: Envestnet Yodlee via CNBC

Also, according to Forbes, last month, penny stocks made up one-fifth of the entire US trading volume — that’s the highest in history. Penny stocks are often seen as the ultimate speculative market as the assets there don’t meet the minimum listing requirements. This just goes to show the sentiment right now.

With a $1,400 third cheque incoming, there’s a good chance that all markets will see increased volumes as taxpayers look to swell the size of their lump-sum freebie. Keep an eye out for that.

What’s going on in the markets this week?

Curious to learn what’s in store for you this week? Here’s everything you need to know

Monday 22nd February

● No major events are scheduled.

Tuesday 23rd February

● GBP — Employment Change (NOV)

● EUR — Core Inflation Rate YoY Final (JAN)

● USD — CB Consumer Confidence (FEB)

Wednesday 24th February

● NZD — Interest Rate Decision + RBNZ Press Conference

Thursday 25th February

● USD — Durable Goods Orders MoM (JAN) + GDP Growth Rate QoQ 2nd Est (Q4)

Friday 26th February

● USD — Core PCE Price Index YoY (JAN) + PCE Price Index YoY (JAN) + Michigan Consumer Sentiment Final (FEB)

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The Contentworks team

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