Robinhood and CNBC's Jim Cramer fuel stocks for "stimmy" rally
Robinhood, the popular stock-trading app at the heart of the recent rise of GameStop and other "meme" stocks, has launched a promotion that may inspire many of its young customers to pour their government stimulus checks into the stock market. Indeed, a number of stock market strategists are worried about a coming "stimmy" rally on Wall Street.
Legendary investor Jeremy Gratham recently predicted that stimulus money flowing into the stock market would soon cause a problem for investors. "We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game, and then an even more spectacular bust," he warned in a recent Bloomberg interview.
Robinhood would not be alone in fueling a stimmy stock rally. On his CNBC television show, former hedge fund manager Jim Cramer earlier this week recommended stocks that individuals could buy with their stimulus checks. He said investors in their 20s or early 30s shouldn't be afraid to risk their stimulus checks in the market, even suggesting it might be smart to use the money coming from the government on shares of such meme stocks as GameStop and AMC Entertainment.
"The younger you are, the more I'm begging you to take an aggressive stance on something speculative," Cramer said.
President Joe Biden signed the American Rescue Plan in early March. Major banks started the $1,400 stimulus checks on March 17. About 100 million checks were expected to be delivered in the following 10 days. Many plan to immediately use the money for basic expenses. But some who receive checks will likely put the money into savings or in the stock market.
Robinhood's recent promotion, which will temporarily give existing customers a cash reward for depositing new funds, is well-timed to capture a fair amount of those stimulus checks. The company launched the "Robinhood Cash Rewards" promotion on March 15. It will run through March 28. Deposits over $1,000 and up to $2,500 will be rewarded with an additional $25 from Robinhood. The brokerage app will pay out the rewards starting April 5. Robinhood's website says to "keep in mind" that while customers can't withdraw their cash bonus for 60 days, they can use the money to invest in the market immediately.
A spokeswoman for Robinhood said the timing of the brokerage app's deposit reward program and the most recent stimulus bill is just a coincidence, and that the promotion is not geared toward attracting government payouts. "Like other brokerages and financial institutions, we regularly run promotions to reward and celebrate our customers," the spokeswoman told CBS MoneyWatch. She added that promotion is only open to existing Robinhood customers.
Last week, Deutsche Bank released a survey of online investors that found 37% said they planned to invest a "large chunk" of their stimulus checks in the stock market. The authors estimated that could mean as much as $170 billion of the government's more than $400 billion stimulus payments would find its way into the market. What's more, the survey found that investors seemed overwhelmingly optimistic that the stock market will continue to rise.
"This positive take [on the stock market] is widespread across all age and income groups, and regardless of when the investor began trading," wrote the Deutsche Bank authors, including the bank's chief strategist Binky Chadha.
One reason more people are pouring money into the market seems to be that they are stuck at home amid the pandemic with little place else to spend excess cash, the authors noted, adding, "A key question is if the surge in equity investment will sustain as the economy reopens."
