Wall Street watches for where rebates go

ByABC News
May 5, 2008, 11:15 PM

NEW YORK -- Give them cash, and they will shop.

That's the idea behind the government's save-the-economy tax rebates, which are starting to hit checking and savings accounts of cash-strapped consumers.

Wall Street has its own opportunistic take on the 2008 economic stimulus plan: Where they shop could add to a stock-price pop.

A hefty $117 billion in rebates will be doled out between now and mid-July, says Merrill Lynch.

That's big bucks found money that will need to find a home.

Some folks (23%) will save the cash, a Citigroup survey found. Others (34%) will pay bills or reduce debt. But some of the dough (up to $1,200 for married couples and $300 extra for each kid) will be spent.

Only 11% said they plan to buy consumables or general merchandise. (However, the National Bureau of Economic Research says the average household spent 20% to 40% of rebates back in 2001.)

Tens of billions of dollars will likely end up in cash registers of U.S. retailers. But which retailers will ring up the most sales, and which stocks will benefit most?

Those are questions Wall Street, in its never-ending quest to ferret out stock market winners, has been busy trying to answer. Where rebate recipients shop and how much they spend could mean an earnings boost and potential stock price gains for the companies that benefit most from this one-time spending boost.

It seems like every Wall Street shop, money manager and stock analyst is spotlighting potential winning tax-rebate plays.

One guidepost, or template, for investors is spending data from the 2001 tax rebates doled out in the last recession. Consumer spending in the two-month period that summer rose at a 5% annual rate, which at the time was the strongest pace in nearly a year, Merrill Lynch economist David Rosenberg noted in a report titled, "Where will the tax rebate be spent?"

Given the economic duress back in 2001, however, big-ticket items, such as cars, air travel, home improvement, furniture and pleasure boats, got little if any boost.