Join us as we assess how ASX share prices react to fiscal stimulus packages – from here and abroad.
The post How does fiscal stimulus impact ASX share prices? appeared first on The Motley Fool Australia. –
The S&P/ASX 200 Index (ASX: XJO) dipped nearly a percent yesterday morning and slipped again today. Theories about what might be causing this have since began to circulate. The Australian Financial Review, for example, turned to the latest US stimulus drama as a potential culprit for causing some recent waves on the share market.
Will the US stimulus actually affect ASX share prices?
The first US stimulus was approved on 25 March 2020 and came in at a whopping US$2.2 trillion. This is right around the time that the All Ordinaries Index (ASX: XAO) hit the deck, touching its record 2020 low on 23 March.
Since that day, the All Ords has maintained an upward — albeit bumpy — crawl. It’s actually pretty close to where it was when 2020 first started off, shortly before COVID-19 came through and started kicking economies all over the place.
In spite of this, ASX share prices have managed to maintain a steady rise, leaving some investors wondering how long it will keep up.
What about economic stimulus in Australia?
Interestingly, the Morrison Government first announced its $17.6 billion stimulus plan on 12 March 2020 — but the All Ords continued sliding downwards. It wasn’t until after 24 March, right around the US announcement, things started looking up.
From 31 March through to the end of April, some ASX companies really came roaring back. For example, Wesfarmers Limited (ASX: WES) gained nearly 10% and Domino’s Pizza Enterprises Ltd. (ASX: DMP) shot up over 12%.
Across the board, the All Ords was up over 7% for the period. Judging by these numbers, it seems like March’s stimulus gave some ASX shares a nice nudge along.
What happens when the money stops?
Australia and the US obviously aren’t alone in the scramble to keep money moving while managing the terrible impacts of coronavirus. The European Union, for example, has proposed “the largest stimulus package ever”.
As far as stimulus money is concerned, we’ve heard a lot this year about money going out. I’m looking forward to 2021, when we’ll learn more about how the money gets spent afterwards and what that might mean for the ASX next year.
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Motley Fool contributor Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.