In the coming weeks, Wall Street could see another significant infusion of capital derived from the new $1.9 trillion stimulus plan, which Joe Biden will want to boost from the first day of his term. Indeed, as was the case last year and in the early days of 2021, federal government checks directed at the most disadvantaged end up being invested in the equity market directly, as revealed by a study by Envestnet Yodlee, which indicated a 53% increase in transactions by households earning less than $75,000 per year, and as such covered by checks sent by the Government.
This relationship, which apparently may seem unrealistic, given the scenario of strong economic contraction, loss of jobs and income, is justified by the high participation rate of citizens in the stock market, where around 65% at some stage in their lives traded securities on the stock exchange, to which is added a much more conscious mentality for the investment universe.
Equally relevant is the fact that the options for profitability are now considerably reduced, particularly in the bond sector, which pushes investors into other businesses, with greater potential for appreciation, but also with a greater incidence of risk, creating the paradigm of difficult resolution that that is, having to invest in a very stretched market in terms of valuations. In recent years, this war of forces has been won by the excessive liquidity present in the system, which again may have a new vitality with the injection of money that I mentioned, plus the guarantee given last week by the FED of low interest and purchases of assets by an extended period of time.
But if it is true that the path of Wall Street has been upward, it is also undeniable that the situation is unsustainable and that the reckoning will eventually occur, with unpredictable consequences, given that unlike the previous bubbles, this time the market imbalance is mainly supported by liquidity created out of thin air, by the main central banks, and as in 2018, when the significant corrections were made in October, the FED gave way to the market, returning to the dovish path, after having announced the normalization of monetary policy.