Prospects of Normality Prompt Wall Street Surge
Wall Street entered a frenzy on Monday following Senate approval of United States President Joe Biden’s $1.9 trillion stimulus package on Saturday. The bill is expected to pass with bicameral approval as soon as Tuesday when it moves through the House of Representatives.
With investors cheering the passage of the sweeping bill, the Dow rose 1%, over three hundred points, while the S&P 500 faced a 0.5% drop.
As Investors begin to adjust to the reality of a return to ‘normal’ in the near future, market leaders that have suffered as a result of the pandemic saw sharp increases in stock price. COVID-19 vaccine rollout has consumers thinking about travel, home improvement, and other projects that may have been put off. In consequence, stocks like Disney (DIS), Walgreens (WBA), and Home Depot (HD) saw major increases with the introduction of stimulus legislation.
Notably absent from rising stock prices were the so-called FAANG stocks—Facebook, Apple, Amazon, Netflix, and Google (now known as Alphabet). The selloff of tech stocks continued into Monday, with Microsoft (MSFT), Intel (INTC), and Salesforce (CRM) on a steady decline, a pattern that has resulted in frustration among some investors. Randy Warren, CEO of Warren Financial, in his recognition of the rotation, pointed out that “good tech stocks are still attractive, so [the rotation] is frustrating.”
One worry associated with the rapid increase in stock price is that of inflation. Lindsey Bell, chief investment strategist for Ally Invest, foreshadowed a potential period of market weakness as investors “grapple with the short- and long-term effects of stimulus.” She added that high-flying “stay at home” stocks could be hit the hardest as a result. Stocks that have seen major increases due to the pandemic such as Zoom (ZM) and Teladoc (TDOC)—two platforms focused on creating virtual alternatives to in-person interaction—have seen decreases between 15% and 25% in the past week alone.
President Biden’s stimulus package notably incorporates $1,400 direct payments to most employed Americans, a controversial measure. As Americans begin to receive payments (President Biden is expected to sign the legislation into law prior to March 14th), a new Deutsche Bank survey has offered some insight into how spending may impact the economy.
Responses to the survey (which included 430 retail investors) showed that half of 25- to 34-year-olds expect to reserve about 50% of their stimulus payments to invest in stock, prompting a report that “a large amount of the upcoming U.S. stimulus checks will probably find their way into equities.” The data also suggested that younger populations (18- to 54-year-olds) plan to spend anywhere between 37% and 40% of their checks on equity market investment, while those over 55 planned to invest only 16%.
The overall sample had nearly equal representation from age groups from 18- to 55-years-old and, as Deutsche Bank noted, fell primarily into the income distribution range of $50,000 to $100,000 per year. More than half of all respondents were employed full-time.
Deutsche Bank Strategist Jim Reid and research associate Raj Bhattacharyya released a report last week, finding that, prior to Senate revisions, Biden’s stimulus package would allow for a predicted maximum of about $150 billion that could go into U.S. equities, based on findings in the aforementioned survey—a potentially market-shifting stimulus.
Effects On the Crypto Market
Some cryptocurrencies also saw major movement on Monday, with Bitcoin soaring over 10%. Its fixed supply cap of 21 million has defined it as a hedge against money printing for many investors.
Ellyatt, Holly. “Young people looking to spend almost half of their stimulus checks on stocks, Deutsche survey finds.” CNBC.com, 8 Mar. 2021, www.cnbc.com/2021/03/08/how-the-young-plan-to-spend-stimulus-checks-deutsche-bank.html. Accessed 8 Mar. 2021.
La Monica, Paul R., and Allison Morrow. “Stocks (mostly) rally as Wall Street cheers Biden’s stimulus package.” CNN.com, 8 Mar. 2021, www.cnn.com/2021/03/08/investing/dow-stock-market-today/index.html. Accessed 8 Mar. 2021.