Americans Are Pouring Their Stimulus Into Stocks
Get ready: The third stimulus checks are on the move.
If you’re one of about 100 million Americans, you should be getting the check in your account this week.
And if you’re like many people, you’re about to invest that in the stock market.
Deutsche Bank estimates that $150 billion of these funds could be headed into investment accounts.
In the last stimulus rounds, securities trading jumped over 80% among recipients in the $35,000 to $150,000 income range.
Now, the market is frothy already, which means that we’re cautious. So today we’re taking a look at the best ways for you to take advantage.
Where is that stimulus money going?
And what will it mean for your portfolio?
Well, don’t worry. We parsed through the numbers for you, and isolated two main sectors that are set to soar as new money gets pumped into the economy.
The best part…
That means we have two trades for you to take advantage of today. Let’s dive in…
First Stop: Everyone Needs the Basics
We know from the Census Bureau that most people spent their first checks on essentials — things like groceries, rent and mortgages:
They spent money at grocery stores, stocking up for themselves and their families.
According to the United States Department of Agriculture, Americans dramatically cut their eating-out budgets during the pandemic. That means most of that food spending was for home-cooked meals.
And this type of spending could continue for years to come — another survey found that Americans plan to keep eating at home instead of at restaurants after the pandemic’s over.
So we’d be foolish to bet against grocery stores in this next round of stimulus.
Second Stop: You Need Money to Make Money
Those who didn’t need the money right away put it into savings and investments.
We know that roughly 3 million traders made new accounts with Robinhood in early 2020. And another 260,000 traders opened E*Trade accounts. And Charles Schwab showed an extra 20 million logins to its platform as states shut down.
We’ve been covering the recent market frenzies a lot lately. We told you how the GameStop trades could’ve been done even better, and we showed you how the NFT frenzy is nothing new.
Most commentators think this activity is probably due to bored investors who are flush with cash. We tend to agree.
And who can blame them? The stock market is still America’s greatest wealth creator. And with the power of investing, these consumers are hoping to use the opportunity to make profits.
All this tells us that people have prioritized shoring up their finances rather than buying luxuries.
What This Means for You
At first that might not feel very “stimulating” to the economy, but it’s actually good news. Saving and buying essentials helped stabilize these households. And they gave consumers a baseline of financial safety.
Some economists even think this is the best-case scenario. Theresa Ghilarducci, a labor economist and author, wrote in Bloomberg: “A booming economy would be a good thing, but that doesn’t mean you should spend your whole check. Instead, consider this a once-in-a-lifetime chance to chip away at your debt, pay off high-interest credit cards or start building your savings.”
Now, this is good news. But remember: 5 million people lost their jobs in the first 11 months of 2020. Even as the country reopens, some people and businesses will keep struggling. Americans won’t simply jump up to go on an Alaskan cruise, buy a new wardrobe and pick up a brand-new Lamborghini.
The trends we showed you above are likely to repeat with the next stimulus payment. And we have two opportunities for you to profit today…
2 Ways to Play the Stimulus Boom
Many consumers are using their stimulus payments exactly the way they were meant to be used — to cover expenses and boost savings.
We don’t need to make it any more complicated than that, either.
Trade No. 1: We’ve talked about the Vanguard Consumer Staples ETF (NYSE: VDC) before. An exchange-traded fund (ETF), it holds companies that make products consumers can’t live without. That’s things like soap, drinks and cereal. Plus, this fund holds the stores where consumers go to buy those products — including Walmart, Costco and Walgreens.
VDC has been rising with the rest of the market. But as we’ve shown you, we believe that stocks have further to run from here. Companies’ latest strong earnings reports bode well for the rest of 2021. And interest rates are staying low for now.
While it’s hard to find bargains right now, we think VDC is a good investment in the long run.
Trade No. 2: We also recommend the Vanguard Financials ETF (NYSE: VFH).
As consumers with extra stimulus cash continue to invest in the stock market, the companies servicing those investments will keep doing well. This fund holds companies like Charles Schwab, T. Rowe Price and Fidelity.
But even better, VFH holds marketmakers like S&P Global, Nasdaq Inc. and CBOE. These are the companies that bring you stock indexes and options exchanges. They benefit even more when investors come online.
And with the S&P 500 Index up over 70% in the past 12 months, we can expect more market optimism in the short term.
Now, before I leave, I want to turn things over to you. We always want to know how things are affecting you in real time, so here’s today’s question: What are you doing with your stimulus check? Are you starting a new project? Focusing on essentials or something else? Let us know at AmericanInvestor@BanyanHill.com.
We may feature your story in an upcoming issue.
Managing Editor, American Investor Today
P.S. That stock market number is real, by the way. The market is up 70% since the correction in March last year.
If you’ve invested during that time, congratulations! Your portfolio thanks you, and as you can see today, there are plenty of opportunities to invest here.
But if you feel like you missed out on this massive run-up in the stock market, you’re not alone. Millions of Americans are concerned about their finances today. They’ve had to sit on the sidelines and they’re looking for a way to be their own financial masters.
If you’re one of them, then the American Prosperity Summit is for you. Click here to see how.