The next wave of stimulus will drive another surge of retail investing in the stock market, Bank of America says

• The next round of stimulus aid will drive another surge of retail investing, Bank of America said.
• BofA data shows the last two spikes in trading app downloads coincided with the receipt of stimulus checks.
• A more broad-based stimulus will lead to a higher uptick of retail-investing, added BofA.
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Retail investors have poured into the stock market in the last year, lured by comission-free trading, work from home conditions, stimulus checks, and high savings rates. Now, Bank of America says that it is expecting the next round of federal stimulus aid to drive another surge in retail investing.

"We expect another uptick in retail activity with another round of stimulus, though the level will likely depend on the type of stimulus (broad based or targeted), the market backdrop at the time, as well as any potential regulatory changes discussed over the coming weeks," a team of BofA analysts said in a recent note.

The firm found that the last two spikes in trading app downloads coincided with the receipt of stimulus checks. However, in both cases, there were extreme market moves (April 2020) and individual stock moves (January 2021) that helped draw investors.

If the next round of stimulus is broad based, BofA expects a higher level of retail activity, particularly as unemployment improves and many Americans are in better financial positions. President Joe Biden's proposed $1.9 trillion stimulus plan includes $1,400 direct payments for individuals making up to $75,000 a year.

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While BofA expects retail engagement to moderate throughout 2021 following the stimulus as people spend more time and money away from home, the bank still expects structurally higher levels of retail activity versus 2019 because of zero commissions, new entrants, and advances in technology.

In addition to a stimulus-boost, Bank of America's data shows that the recent surge in retail trading has been led by young investors and social media.

Throughout 2020 and January 2021, brokerage firms E-Trade and TD Ameritrade saw a rising percentage of users aged 18-34, BofA said.

"It's not just retail investors that may increasingly be a force in markets, its young retail investors," BofA noted. "And while traditional news outlets did see a usage boost from the January surge in certain stocks, the boost was far bigger for Reddit, which tells you something about how these younger investors are obtaining views and information."

Bank of America found that Robinhood daily average users reached 8 million, up from an average of 4.5 million, at the height of the GameStop market-mania in late January. At the same time, conversations on the WallStreetBets Reddit forum climbed dramatically.

While Robinhood usage has come down from its January highs, it still remains elevated relative to before the GameStop frenzy, indicating that retail activity is here to stay, BofA added.

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