Worried an end to global stimulus will crash the ASX 200?

The ASX 200 has joined global shares today to post solid gains. But how long will the stimulus-fuelled rally last?
The post Worried an end to global stimulus will crash the ASX 200? appeared first on The Motley Fool Australia. –

falling asx share price represented by business man wearing box on his head with a sad, crying face on it

The S&P/ASX 200 Index (ASX: XJO) joined the global share market rally on Friday, with the index finishing 0.8% higher.

That comes after US share markets posted strong gains on Thursday (overnight Aussie time).

The tech heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) gained 2.5%, bringing it within 5% of its record highs after having entered correction territory (down 10%) just last week.

Meanwhile, the Dow Jones Industrial Average (INDEXDJX: .DJI) closed up 0.6% for a new all-time high.

Investors’ animal spirits have been stoked by the latest US$1.9 trillion stimulus injection waved through by United States President Joe Biden.

As Chris Gaffney, president of world markets at TIAA Bank puts it, “The administration has slipped a little bit of extra fuel to the equity markets with their bill. It’s going to be rocket fuel. We’re headed to new highs because of all that stimulus money that’s being put out there and it’s more broad-based than the first couple stimulus programs.”

Is the stimulus-fuelled ASX 200 rally sustainable?

Much of the future performance of the ASX 200 remains dependent on how well Australia and the world emerge from the pandemic. And much, of course, depends on how well the 200 companies that make up the ASX 200 perform themselves.

But there’s no arguing that ASX 200 shares have enjoyed major tailwinds from government stimulus packages. And as we’ve witnessed with the passage of new US stimulus measures, it’s more than just the Aussie government pulling the levers.

This concerted effort by leading global governments and central banks makes the stimulus outlook more sustainable. At least over the medium term.

In Europe, for example, the European Central Bank (ECB) reported that it plans to increase the pace of its asset purchases.

Noting the risk of rising interest rates for market financing, Lagarde said (quoted by the Australian Financial Review):

We will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022.

She added that the ECB “expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year”.

Then there’s this, from Bloomberg:

Japan needs to double the nearly [US]$700 billion it’s already budgeted in extra spending to ensure a recovery from the pandemic, says an influential ruling party lawmaker… Kozo Yamamoto.

Saying the Bank of Japan (BoJ) can’t do all of the heavy lifting itself, Yamamoto adds, “We need to make a bold move along the lines of what the US is doing. Some people are in dire circumstances.”

Foolish takeaway

While the future will always remain uncertain, investors worried that the ASX 200 could crash because global stimulus efforts are reined in too soon and too quickly can most likely rest easy.

At least on that front.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Worried an end to global stimulus will crash the ASX 200? appeared first on The Motley Fool Australia.

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