The Ratings Game: Don’t expect people to use stimulus money to buy GameStop stock, analyst says

Investors expecting GameStop Inc.’s stock to get a boost as the latest government stimulus payments hit bank accounts will likely be disappointed, according to BofA Securities analyst Curtis Nagle. Nagle wrote in a research note Friday that in collaboration with BofA’s predictive analytics group, he analyzed the potential impact on GameStop’s stock
GME,
-5.33%
from the $1,400 stimulus payments that are currently being made.

By looking at online forums such as Reddit, Nagle said previous sharp increases in the number of conversations involving stimulus and GameStop (GME) appeared to coincide with big stock price gains. But going forward, Nagle, who is bearish on GameStop shares, said he believes any positive effect from the “stimmies” has already been played out. “[W]e believe the impact going forward may be limited given two factors,” Nagle wrote in a note to clients. • “Conversations [sic] involving stimulus appear to have peaked and GME shares declined over the past few days.” • “The number of recent conversations including both GME and stimulus is low.”

BofA Global Research, ListenFirst

Nagle also pointed out that GME trading volumes have also steadily declined and short interest has fallen “materially.” Nagle reiterated his underperform rating on the stock, and his price target of $10. Trading volume has averaged 34.5 million shares per day in March through Thursday, after averaging 43.6 million shares per day in February and 66.4 million shares in January, according to a MarketWatch analysis of FactSet data.

FactSet, MarketWatch

And the latest available exchange data showed that short interest as a percentage of the public float was 26.1%, compared with over 100% when the Reddit-induced trading frenzy started in mid-January. GameStop’s stock dropped 6.7% in morning trading, and have tumbled 29.1% this week. That puts the stock on track to snap a three-week win streak in which it rocketed 551.6%, which followed a three-week losing streak in which it plummeted 87.5%. Don’t miss: Robinhood business model under fire at GameStop hearing in Congress. Also read: The most frequently asked questions by Robinhood traders reveal ‘new type of uninformed equity-market participant.’ Rather than buying stocks, it looks increasingly likely that the current $1,400 stimulus payouts, and other disposable moneys, will be spent elsewhere. Read more: Student loans, charity and pet bills — here’s what readers way they will do with their $1,400 stimulus checks. “While we have not surveyed consumers on how much they intend to invest in the stock market going forward, in our latest Home Work survey, respondents plan to increase spending most over the next 12 months on activities that were restricted by COVID-19, including vacations, restaurants and travel, as well as home investing and decorating,” Nagle wrote. Despite this week’s pullback, GameStop shares are still up 1,105.0% over the past three months, while the S&P 500 index
SPX,
-0.18%
has edged up 5.4%.

Need to Know: The bond market is ‘useless’ predicting inflation, and stocks look even more expensive than they appear, strategist says

The question still reverberating in financial markets is to what degree the $1.9 trillion coronavirus relief will be spent, either immediately or if the virus recedes enough for shoppers to be allowed, and wanting, to go out. This column previously pointed to surveys of both how the initial $600 stimulus was used, and plans for the $1,400 that has arrived for many households, to suggest much of it won’t be deployed into the economy.

Another way to look at it is if households perceive the stimulus to be additional income or additional wealth. Studies have shown that the propensity to spend out of wealth is just 5%, while the propensity to spend out of income ranges from 10% to 50%, according to a recent speech from Gertjan Vlieghe, a voting member of the Bank of England’s Monetary Policy Committee. Dhaval Joshi, chief strategist at BCA Research, says whether the new stimulus is considered wealth or income depends on whether the household receiving it has a low or high income to begin with. But looking at past stimulus checks, there weren’t meaningful shifts in either consumption or inflation.

Accordingly, he thinks market expectations about inflation are getting carried away. He also says — in a note written before Thursday’s plunge in crude-oil prices
CL.1,
+0.95%
— that inflation expectations are positively correlated with high commodity prices, even though actual inflation tends to drop when commodity prices are high. “Given that the bond market
TMUBMUSD10Y,
1.728%
is useless at predicting inflation, it is also useless at assessing real interest rates,” he says. If the bond market is exaggerating the future level of inflation, than the correct inflation-adjusted bond yield should be even higher. “The important takeaway right now is that in any comparison with the real bond yield, equities and other risk-assets are even more expensive than they appear.” Bitcoin flows mirror stock flows

Is bitcoin
BTCUSD,
+2.22%
a diversifier? It is a huge debate in markets, that several major banks have taken on in just the last two weeks. Sven Henrich, the technical analyst who runs the Northman Trader website, produced this chart, showing that correlation between the weekly flows into bitcoin and stocks is at the highest level ever. Random reads The tulip craze in the 1600s is often cited by financial market analysts when discussing speculative manias. For irony lovers, there are nonfungible tulips — that is, illustrations of tulips sold on the blockchain — for sale. A shark with wings? Scientists puzzled over fossil found in Mexico. Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern. Want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch writers.

Metals Stocks: Gold edges higher, on track for a second weekly gain

Gold futures edged higher Friday as U.S. Treasury yields steadied after a spike in the previous session and with the yellow metal underpinned by inflation worries and jitters about this week’s slump in equities. “Gold is finding comfort above $1,730 thanks to a dovish Federal Reserve and U.S.-China tensions,” said Lukman Otunuga, senior research analyst at FXTM. “The precious metal remains supported by the cautious market mood while progress on [President Joe] Biden’s stimulus package continues to cushion downside losses.”

“Given how the Federal Reserve has reiterated its stance that interest rates are not going anywhere anytime soon, this bodes well for zero-yielding gold,” he told MarketWatch. However, expectations around Treasury yields rising could “limit the upside potential, especially when factoring how 10-year Treasury yields have posted a new high since January 2020.” Gold for April delivery
GCJ21,
+0.06%
edged up by 60 cents, or 0.03%, to $1,733.10 an ounce on Comex, on track for a 0.8% weekly rise, which would be the second in a row. May silver
SIK21,
-0.50%
was off 18 cents, or 0.7%, at $26.17 an ounce, heading for a 1% weekly rise. Also read: China pollution reduction efforts look set to disrupt iron ore’s rally Treasury yields steadied Friday, with the rate on the 10-year note
TMUBMUSD10Y,
1.728%
around 1.717% after spiking to a 14-month high in the previous session. Bond yields jumped on Thursday after the Fed reinforced a dovish tone to its monetary policy at its meeting on Wednesday but expressed little concern about any tightening of financial conditions. Higher yields can be a negative for gold because they raise the opportunity cost of holding non-yielding assets. “The tug of war continues between rising bond yields (which are weighing on gold) and the nervousness on the stock markets (which is tending to lend support),” wrote analysts at Commerzbank, in a note. Meanwhile, some analysts argue that, despite higher bond yields, gold still has some attraction as an inflation hedge, given the $1.9 trillion fiscal stimulus enacted by the Biden administration this month along with the Fed’s easy money policies which are expected to see U.S. economic growth surge this year. Other metals traded on Comex moved lower Friday, with May copper
HGK21,
-0.40%
down 0.9% at $4.07 a pound, headed for a weekly loss of 1.6%. April platinum
PLJ21,
-2.37%
lost 3.3% to $1,177.80 an ounce, trading 1.8% lower for the week. June palladium
PAM21,
-1.42%
fell nearly 1.9% to $2,613.50 an ounce. Prices were poised to gain more than 10% for the week. They settled Thursday at the highest for a most active contract since February of last year on concerns over tighter supplies.