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WHERE TAX REFUNDS AFTER THE BBB ARE LIKELY TO GO

Various provisions in last year's "big beautiful bill" tax law could generate about $1,000 of stimulus per household on average during U.S. tax season this year, a BofA Securities analysis shows, although middle- and higher-income earners are likely to benefit the most.

The firm says in a note this week that higher-income households will be less likely to spend "windfall cash," so only about half of the stimulus may be spent in the near term. Refunds are likely to peak this month and stay elevated through March and April, it adds.

Based on card data, the firm's research shows among five categories, groceries and gas are expected to be the biggest beneficiaries of refund spending "across cohorts."

Among lower-income households and seniors, clothing spending may pick up. One analyst suggests lower-income-oriented retailers such as Dollar General DG.N may benefit as well as National Vision EYE.O and Academy Sports ASO.O, and auto parts retailers. Walmart WMT.O and Costco COST.O "may see outsized spending, esp. as they offer groceries and have gained share with higher-income consumers," the note says.

Another analyst suggests that lower-income consumers may boost certain travel spending after receiving refunds, which would be a positive for stocks like Wyndham WH.N, Boyd Gaming BYD.N and Red Rock Resorts RRR.N. The research suggests also that "higher-income consumers were more likely to spend refunds on air travel," so one analyst says that points to airlines as likely to benefit.

Other industries likely to get a boost include specialty and softline retailers serving lower- and middle-income consumers, including Ross Stores ROST.O and Ollie's OLLI.O. Restaurant spending could increase as well but the analysts note that "the boost to restaurant spending was lower than for staples." At the same time, card companies such as Capital One COF.N could benefit from a decline in card delinquencies as refunds may be used to pay down debt.

(Caroline Valetkevitch)

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