Goldman Sachs analysis of the impact of $1.9 trillion COVID-19 Bill on the Stock market

A huge sum of fresh cash is about to be piped into American homes through the $1.9 trillion COVID19 relief bill that will make its way into the stock market. Goldman's Chief U.S equity strategist David Kostin said, " We expect households will be the largest source of equity demand this year. We raise our household net equity demand forecast from $100 billion to $350 billion, which reflects faster economic growth and higher interest rates than previously assumed with additional stimulus payments to individuals and increased retail activity in early 2021." 

The recent research conducted by Goldman Sachs (GS) shows that the net U.S equity demand among households reached $307 billion within the first nine months of 2020. The corporations are predicted to be the second-largest source of U.S equity demand in 2021 at $300 billion. At first glance, the increased equity demand forecast made by Goldman looks counterintuitive even with the consideration that some homes will be equipped with new stimulus checks. Fueled by the rising inflation anxieties, the March higher in the 10-year yield to near 1.6% over the past month has pressured markets and previously heated momentum stocks.   

 In February, the Nasdaq Composite and S&P 500 are down 7% and 3% respectively. On the other hand, Tesla shares crashed by 30% while Star money manager Cathie Wood's Ark Innovation ETF lost 21% since the beginning of this year. Based on research conducted by Goldman, equity mutual fund and ETF inflows have amounted to $163 billion since the beginning of February. This marks the largest five-week inflow on records in absolute dollars and the third largest within a decade relative to assets. 

Goldman points out that weekly flows into bond funds averaged about $10 billion in February, down 50% from January. The BMO Capital Markets Chief Markets Strategists, Brian Belski's research dating as far back to 1990 shows, the S&P 500 posted an average price return of 14.2% during periods of rising interest rates compared to a mere 6.4% average gain in periods of rates. Belski in seven interest rate cycles since 1990 identified which yields rose for long periods and the S&P 500 has had an average annual price gain of around 15.1%.