Last week we saw an army of retail investors attempt to take down big Wall Street hedge funds that were making profits by shorting stocks on companies weakened by the impacts of COVID-19. While the effort was noteworthy, it appears that it merely created a blip on the stock market radar which remains quite strong, even with millions of North Americans unemployed as a result of the pandemic. If there’s one thing confirmed from last week’s market volatility, it’s that the stock market is not a holistic representation of how well or how badly our economy is doing.
If you’ve been watching the news lately, you’ve probably heard that companies like AMC theatres and Game Stop saw their share prices skyrocket to unprecedented levels. This was primarily caused by individual day traders banding together to stop major hedge funds from gaining profits by betting that companies would fail and go bankrupt due to the pandemic. This influx of retail traders, who came to the rescue of the likes of AMC and Blackberry, created mayhem in the market for a few days until everything returned to what is perceived ‘as normal’. This coordinated approach from main street day traders caught the attention of politicians in the U.S. Jared Bernstein, a member of President Biden’s Council of Economic Advisors, noted the ‘’situation was merely a symptom of greater inequality in the U.S. economy,’’ pointing to a booming stock market and rising poverty in the U.S.
This begs the question – if employment rates in Canada and the U.S. are at historic lows, and oil prices have plummeted, and consumer confidence is down, why is it that we’re not still in a recession? Part of the answer is that governments have learned a lot from the 2008 crisis and, to their credit, were quick to step in to keep the economy afloat during the pandemic. Eventually, however, the taps will run dry and governments will be looking for different ways to inject stimulus into the system to sustain the economic recovery. One way of doing that, according to the Deputy Prime Minister and Minister of Finance Chrystia Freeland, is by looking at ways to unlock our individual savings accounts. According to Deloitte, it would appear that Canadian households and businesses are sitting on a massive mountain of cash as a result of the pandemic.
“How is that possible?” you may ask. Well, it seems that those Canadians lucky enough to work from home are spending less on day-to-day services like filling-up their gas tanks, paying for parking downtown, and eating at restaurants. With all this extra cash-flow, it seems that more Canadians are turning to day trading during the lockdown and investing their savings in high-risk, high-reward stocks as opposed to low-yielding government bonds. With Canadians sitting on nearly $200 billion in excess cash, Minister Freeland is now trying to appeal to Canadians by suggesting they use their savings to help stimulate the economy. Some think the government should reduce the GST to stimulate consumer spending, while others have advocated for new tax credits on purchases linked to sectors that have been hit the hardest during COVID, such as flight tickets to help airlines or even gym memberships to help bring back customers post-COVID. For now, Finance Canada seems to still be in listening mode.
