New retail investors — seen as a key driver of a rally in the US stock market over the past year – will spend a good chunk of their upcoming stimulus money on stocks, according to a Deutsche Bank survey.

Half of respondents between 25 to 34 years old plan to spend 50 per cent of their stimulus payments on stocks.

18 to 24-year-olds planned to use 40 per cent, and 35 to 54-year-olds planned to use 37 per cent.

The over-55s surveyed said they’d put only 16 per cent into stocks. Weak.

Overall, this could represent a sizeable inflow into the market.

“Behind the recent surge in retail investing is a younger, often new-to-investing, and aggressive cohort not afraid to employ leverage,” Deutsche Bank strategists said in a report.

“Given stimulus checks are currently pencilled in at circa $405 billion in Biden’s plan (before Senate revisions), that gives us a maximum of around $150 billion that could go into U.S. equities based on our survey.

“If we estimate this at around 20 per cent (based on some historical assumptions), that will still provide around circa $30 billion of firepower — and that’s before we talk about any possible boosts to 401k plans outside of trading accounts.”

 

Profiting from the retail buzz

Retail investors are moving markets.  The battle over US stock GameStop in particular represented an extraordinary fight between rich instos and the disgruntled retail class.

Melvin Capital, the hedge fund at the centre of the GameStop drama, lost 53 per cent of its value in January.

This market moving power is why New York asset manager VanEck is relaunching a social sentiment exchange traded fund.

It’s a reincarnation of the Sprott Buzz Social Media Insights ETF, which outperformed the S&P 500 by about 10 percentage points over its life.

However, since April last year it has taken off, smashing the broader index:

Source: https://on.ft.com/2OiZ4tE

“For many years and even generations we have known that sentiment drives markets,” says Jamie Wise, chief executive of Periscope Capital, which created the index.

“The problem was that we could never measure it.”