No, I haven’t lost my mind, and no, I’m not blindly bullish. I’m bullish for good reasons.
Yesterday, another prospective positive for the stock market landed on my desk in the form of a report from the New York Fed on what consumers did with the stimulus checks they got and what they’re saying they’ll do with the next check(s) when they get them.
Here’s what the report said, why it’s bullish, and two stocks to buy right now to play the news…
Where the Money’s Going and Why It Matters
Now, we have a good idea about what they did with those checks.
The New York Federal Reserve Bank conducted a survey in June asking 1,408 households if they got money, how much they got, and what they spent it on.
Most analysts and Americans might find the data fascinating, if not telling…
According to the survey, 89% of respondents reported receiving a payment. The median amount reported was $2,400.
An unusually high number of households opted to save some of the money and pay down debts, as opposed to spending it.
Households allocated 36.4% to savings and 34.5% to paying down debt; that’s a combined 70.9% going into banks, brokerage accounts, savings plans, and towards paying down credit card bills, auto loans, and other accumulated debt.
We know, because it’s been written about extensively, including by me in several articles, that millions of stimulus check recipients opened up new brokerage accounts and added cash to existing accounts and have been active stock-buyers since the end of March.
It’s those “retail” buyers that levitated stocks off their lows, have kept on buying and forced mutual fund managers and institutional traders and investors to buy stocks behind them, helping to boost share prices higher, and triggering a positive feedback loop that’s still driving stocks higher.
And if they’ve been successful investing their stimulus savings, which the bull market would attest to, they’ll have more to invest in the future, more to save, and more to spend.
On the spending side of the equation, the survey showed households spent 18.2% of their checks on “essentials” and 7.7% on “non-essentials;” that combined 25.9% is a lot less than predicted.
According to Fed economists, “the low marginal propensity to consume” was attributed to “the unprecedented high uncertainty about the duration and the economic impact of the pandemic, the social distancing rules and restrictions on in-person shopping, and delayed rent payment.”
The remaining 3.2% was “donated.”
Those data points came out of the June survey. The Fed conducted a follow-on survey in August.
New data shows respondents were equally, if not more, cautious when asked what they might do with a second stimulus check of $1,500.
August’s numbers revealed that respondents would allocate 76% of payment to savings and debt pay-downs, and only 21% to spending.
We know there’s more “stimulus” coming, and Americans are going to get checks as part of any package. Though the timing of stimulus, or helicopter money, is uncertain, we’ve got a fairly good idea now where a lot of that money’s going.
I’m betting a lot more will go into savings, including into brokerage accounts, which will boost stocks in another positive feedback loop round.
Two Stocks to Buy Right Now – and Then Some
When the election’s over, and the left’s and right’s political cards are on the table, and more money and stimulus kicks in, and we get an effective vaccine (or even just better treatment protocols, which we’re seeing already), millions of savers will start allocating more towards delayed spending, and the economy will start growing robustly, and stock markets will continue to rally.
That’s why it all matters to you.
In the meantime, I’ve got one stock for you that will keep making new highs on more spending and the economic recovery, and another stock that’s likely to deliver a nice 50% return by this time next year.
Target Corp. (NYSE:TGT) has been running on all cylinders and making successive new highs again and again. If you don’t own it, buy it, it’s going to keep earning more and profiting more from consumer spending, both at target stores and in the company’s great online platform.
Then, there’s Expedia Group Inc. (NasdaqGS:EXPE). The stock’s been hurt as travel, leisure, and hotels have suffered, but it’s been “basing” and going to explode when we get better virus treatments, a vaccine, and everyone around the world gets back to doing what they love to do – travel and vacation.
Go get ’em.
Sincerely,
— Shah
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Source: Total Wealth