Retail investors stuck at home with spare cash, spare time and armed with free trading apps, are playing in the US equity market. © FT montage; Bloomberg

Americans are expected to pour billions of dollars into the stock market when stimulus payments begin hitting bank accounts later this week, adding fresh fuel to a retail trading frenzy that has swept Wall Street.

Retail investors are likely to buy almost $3bn worth of equities when the payments, part of Joe Biden’s $1.9tn spending package, are transferred in coming days, according to Vanda Research. That would be around $1.5bn more than the typical daily inflow over the previous month.

“This would represent by far the largest single day of buying from retail ever,” said Eric Liu, head of research at Vanda.

Individuals with online brokerage accounts plan to place more than a third of their cheques into equities — a total injection of up to $170bn over time, Deutsche Bank said in a report last month.

The coming deluge underscores the increasingly large role retail investors — stuck at home with spare cash and spare time and armed with free trading apps — are playing in the world’s biggest equity market.

“There is a group that is seemingly taking this stimulus and is not investing it in the economy,” said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management. “They are investing it in the markets.”

Bar chart of Daily inflows ($bn) showing Retail traders expected to pump stimulus payments into stocks

Flows into equities from retail investors, as well as brokerage account openings, rose sharply when the previous government stimulus hit bank accounts. In March 2020, when the first government relief arrived, the amount retail investors spent on stocks jumped by $838m above the average, and it rose by $381m in December 2020 when the second wave of stimulus passed, Vanda said.

The Biden administration’s stimulus package is the largest direct relief to Americans since the start of the pandemic. Individuals who earned less than $75,000 in 2019 will receive $1,400 in direct government stimulus, expected to reach bank accounts on Wednesday or Thursday.

Robinhood, one of the most popular free trading brokerages, has already sought to tap in to fervour, sending a newsletter to customers this week proclaiming that “the stimulus has landed”.

“The market is at the forefront of conversation, and people have more time on their hands and less to spend their money on,” said Steve Sosnick, chief strategist at investment platform Interactive Brokers. In the wake of the second stimulus cheques in December, funds held by clients on the platform increased by 7 per cent.

Younger investors are driving the stimulus-backed push into markets. According to a survey by Deutsche Bank, two-thirds of investors under the age of 34 intended to use some portion of their stimulus cheques to buy stocks. In over 55s this number dropped to less than a quarter.

“That’s why tech and growth are rallying again. The nature of the rally [this week] is completely consistent with the types of stocks that younger people are investing in,” said Slimmon.

How investors are spending their stimulus cheques has also changed over the course of the pandemic, as retail investors have moved in droves from buying up big name, large-cap stocks to smaller companies. Net purchases outside the blue-chip S&P 500 by retail investors are up 60 per cent by value from the start of August, Vanda data show.

Retail trading volumes now account for more than 20 per cent quarter of all trading flows, according to UBS Equity Research, up from 8 to 10 per cent before the pandemic.

The trend is accelerating. In 2020, an average of 10.9bn shares were traded every day, up from 7bn in 2019, according to research from Piper Sandler. In 2021 that number already exceeds 15bn shares per day.

“We thought that last year was an over-the-top year . . . with the big increase in the market being driven by retail,” said Richard Repetto, an analyst at Piper Sandler. “This year is not just a continuation of that momentum, it’s a step up.”

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