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The world economy was brought to its knees by the coronavirus outbreak. The abrupt halt in trade has repercussions in many parts of life, from travel to dining and shopping.
The concept of social distance – avoiding direct contact in order to minimise the spread of COVID-19. It is also incompatible with another facet of life: professional sports.
Professional sports, like financial markets and retail commerce, draw large numbers of people in a variety of ways. Its spawns branch industries in the process. Sports betting is one such burgeoning sector.
That’s a lot of money floating around outside of established financial markets. And the sector is only expected to grow in the future. Morgan Stanley believes that by 2025, it will be an $8 billion-per-year-revenue sector.
Something happened in financial markets in March 2020. Its when professional sports leagues throughout the world began to temporarily stop their operations owing to coronavirus pandemic lockdowns.
However, for a while in March, capital markets appeared to be dry. Enterprises that were short on funds in the near term faced long-term insolvency – i.e. bankruptcy – risks.
That’s when the faucet was turned on. The Federal Reserve began pumping nearly $3 trillion (and counting) of new money into markets. While the US Treasury launched pay-cut programmes for corporations and people.
These two initiatives collaborated to inject more than $6 trillion in the stimulus. All in an effort to avert the biggest economic disaster since the Great Depression.
According to surveys, over 20% of the monies obtained by individuals who received unemployment benefits during the epidemic have been recirculated back into American financial markets.
A perhaps unintentional speculative hunger has taken root
in the goal of averting an economic collapse. A large-scale sociopsychological change in American behaviour is taking place as a result of stimuli.
The Fed’s and the government’s assistance has changed how Americans think about saving vs investing. This is working to arouse ‘animal spirits,’ in every Keynesian meaning.
Interest rates have fallen as a result of the influx of money into the market. The ‘cost of capital’ is exceptionally low as well.
Furthermore, the vast size of assistance is intended to encourage consumers and investors to reinvest their money in the system.
The Fed is attempting to persuade individuals to spend their money now. Either through consumption or investment, rather than saving and jeopardising the recovery. Investing currently appears to be a more profitable use of capital than retaining it.
As a result of these circumstances, a flood of new retail traders has entered the financial markets. During the coronavirus epidemic, Robinhood, a commission-free brokerage trading programme popular among millennials and younger investors. It saw its total accounts increase from 10 million to 13 million.
Customers are frequently new to financial markets. The business estimates that more than half of new customers have established a brokerage account for the first time. They have a typical client age of 31.
It’s not just Robinhood that’s attracting new investors. Traditional US brokers like as TD Ameritrade, Charles Schwab, and Interactive Brokers gained more than 1 million accounts in the first quarter of 2020. The data represents a +4% year-over-year growth. This compares to year-over-year growth of 1% in new brokerage accounts in the earliest quarter of 2019. Numerous retail traders have benefitted from this.
Since the bottom was reached in the last week of March 2020. US stock markets have risen by more than 60% from their lows. The last few months have been euphoric for retail traders. But recent and historical precedent provides several cautionary tales from previous situations.