TheEconomistMay28th 2022
Graphic detail Stimulus and stockmarkets
81From Main Street
to Wall Street
A
merica’s stockmarket enjoyed a
steady bull run between 2009 and 2021.
Although the advent of the covid19 pan
demic briefly sent stock prices down, the
rebound was substantial: $10,000 deposit
ed into a fund tracking the s&p 500 in
March 2020 would have grown to $21,416 at
the market’s peak in December 2021.
Many retail investors performed much
better. Tales of newly minted memestock
millionaires who got rich backing Game
Stop, a videogame retailer, prompted
some observers to reconsider the skills of
retail investors. Might they have some stra
tegic advantage over the pros?
One explanation may be significantly
less sexy: $800bn of stimulus cheques. A
new paper by Robin Greenwood of Harvard
and Jeffrey Wurgler and Toomas Laarits of
New York University explores how big the
effect was. They observed that from Janu
ary 2020 to April 2021 an equally weighted
portfolio of stocks in which retail investors
were most active gained nearly 150%,
against 38% for the overall market.
To discover the direct effect of the stim
ulus, the researchers first needed to find
the precise dates on which the payments
were received. As the poor spend a bigger
share of their incomes than the rich, they
expected the stimulus to cause large surges
in spending in poor areas. Sure enough,
the authors found distinct spikes follow
ing each of the three rounds of cheques.
Because the stimulus money went to
individuals, not to institutional investors,
it is the most likely cause of any divergence
in performance between shares favoured
by small buyers and those preferred by as
set managers. Just before the cheques were
paid, returns among stocks with unusually
high retail interest were unremarkable. In
contrast, in April 2020—two weeks after
the first round of “stimmies”—these
shares gained 13%, whereas the overall
market was up just 2%. And two weeks
after Americans received another $600 in
December 2020, the same retail portfolio
had surged by 24%, compared with 4% for
the market as a whole.
Surveys estimate that 1015% of the
stimulus money, around $100bn, was im
mediately invested in the stockmarket.
The researchers found that a third round of
stimulus in March 2021 had no effect,
which suggests that,bythen, many Ameri
cans had found somethingelse to spend
Uncle Sam’s money on.n
Stimulus cheques buoyed retail
investors’ favourite stocks
010-102030JFMAM J
2020 2021JJASOND FMAJFMAM J
2020 2021JJASOND FMAFirststimuluspaymentsApr 2020DaysafterstimuluspaymentsSecondstimuluspaymentsDec 20205075100150200250Stimulus
payments↑
Biggerspending
increaseinlow-
incomeareas20%ofstockswithhighest
retail-investortrading20%ofstockswithlowest
retail-investortradingStimulus
payments13012011010090
0 5 10 1513012011010090
0 5 10 15→ Spending data reveal exactly when the bulk of stimulus funds were received→ Stocks favoured by retail investors performed particularly well→ Retail investors got lucrative returns after stimulus cheques were paidUS non-food retail spending, difference between lowest- and highest-income areas
Percentage-point change on January 2020 averageUS stockmarket, value of $1 invested on day of stimulus paymentsUS stockmarket total returns, by quintile of retail-investor trading
Top 2,000 stocks, Jan 1st 2020=100, log scaleSources:“Theeconomicimpactofcovid-1”, by Raj Chetty et al., 2020; “Stockmarket stimulus”,
byRobinGreenwood,ToomasLaarits& Jeffrey Wurgler, NBER working paper, March 2022Allstocks20% of stocks with highest
retail-investor trading$1,00 $600 $1,400