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If People Aren’t Bored Anymore, What Happens to the Stock Market?

The return to normalcy could negatively affect the flow of retail money into markets.
(Billion Photos)
(Billion Photos)
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“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,” WSJ writes.

What’s Going On: Two weeks ago, the Treasury Department began sending out $240 billion worth of electronic payments to households. But the extra funds are coming into the stock market this time around.

Numbers To Consider:

  • JPMorgan Chase data showed spending on Chase credit cards has risen and is just 1.6% below pre-Covid spending, compared to 40% last fall.
  • But daily equity purchases by individual investors have remained flat at roughly $11 billion on a 10-day rolling basis, according to VandaTrack.

Why It Matters: “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.”

The Takeaways:

  1. Vaccinations coupled with a rollback of restrictions mean there are “more ways to spend money recklessly away from home.”
  2. The absence of the “tidal force” that was retail trading “should have consequences for how markets trade, at least in the short term.”
  3. Retail money favored things like EVs, space and cannabis which “have all stalled of late.” It could also have a notable impact on the wider tech sector, though it’s less clear.

Justin Oh:

On one hand, I am a little worried about the Great Reopening causing a loss of interest from retail investors. Less trading volume from retail investors could lead to lower stock prices, especially in the names that have been popular with the “crowd”.

But on the other hand, if retail investors instead turn back into consumers, that could lead to some really great earnings reports from companies that stand to benefit from Post-Reopening spending.

Regardless of what happens, I believe there will continue to be dislocations in the market and opportunities to find lucrative stocks. We’ll be here for you at Morning Cents and at acouplecents.com.

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