What a Second Stimulus Package Could Mean for the Stock Market

Well, it looks like more cash from Congress could be on its way to Americans very soon. Congress is currently debating on a second stimulus package to help ease the economic burdens caused by the coronavirus, with an agreement expected in the next few weeks.

As you may recall, Congress’ $2 trillion stimulus package back in April was an unprecedented government response to help Americans stay afloat after the state shutdowns and subsequent stay-at-home orders. And not only did it help Americans, but it gave the stock market a nice bump, too.

Folks who received stimulus checks spent an average of $600 or more. As a result, consumer spending increased in nearly every category, which, in turn, helped the stock market regain some momentum. Keep in mind that the U.S. is a consumer-based economy, as consumers are about 70% of the economy. So, the more people spend, the stronger the economy, which is bullish for the stock market.

Interestingly, a CNBC study found that people were fine with investing their stimulus checks directly into the stock market. Securities trading increased more than 90% from Americans earning between $35,000 and $75,000 annually.

Research also shows that a lot of these investors are new to the market. The millennial-favorited stock trading app, Robinhood, reported that daily trades were up a whopping 300% in March year-over-year and continued to climb through May.

So, odds are good that when Congress rolls out a second stimulus package there will be a new flow of cash into stocks – making the stock market even more attractive. This is yet another reason why I believe the Dow will hit 40K in the coming year.

If approved, the stimulus checks could reach citizens even sooner, as most of the system’s kinks should be ironed out. The estimated time span is around one week after the legislation is finalized.

As I discussed yesterday, presidential election years can significantly add to the stock market’s gains, and that’s what I expect this year, too. But I don’t think this giant cash flow boost should be underestimated in how it can help the stock market in the long run, either. I’m betting that it will not only cushion us from the worst damage forecasts but also send the stock market flying higher.

That said, not every stock will be a winner. As the market grows more volatile, I look for the fundamentally superior stocks to emerge as the market leaders. These are the stocks that revealed strong second-quarter earnings and sales, as well as positive third-quarter guidance.

My Breakthrough Stocks fit the bill to a “T.” In fact, they have surged an average 40% since April! During this past Wednesday’s debate with my InvestorPlace colleague Matt McCall: Dow vs. Bitcoin: The Race to 40K, I even gave away one of my Breakthrough Stocks names.

For the second quarter, this stock posted a 40.6% earnings surprise and 3.9% revenue surprise, and company management expects business to continue to improve in the third quarter. The stock rallied nicely following its strong results, and I expect it to continue climbing higher from here.

If you watch the replay of the Race to 40K event now, you will get the name of the stock, as well as more details on why I expect the Dow to hit 40k well before bitcoin.

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