The S&P/ASX 200 Index (ASX: XJO) has had a rollercoaster start to the year. Despite initially being hammered by the coronavirus pandemic shutdown and oil price war, the ASX 200 has had a comeback in recent weeks. In fact, the benchmark index has surged 20.78% since bottoming out at 4,546 points on 23 March.
But despite the recovery, there is still plenty of uncertainty in the markets. Just last week we saw that Australia's unemployment rate jumped to 6.2% in April with 600,000 jobs lost during the pandemic.
So, how is the ASX 200 still climbing higher despite the bleak economic data?
Why is the ASX 200 soaring higher?
One thing that is helping the Aussie share market in 2020 is better-than-expected data. While COVID-19 has hit the economy hard, economists had forecast much higher unemployment. In fact, Treasury estimates have forecast unemployment to reach 10% in the June quarter. That means that last week's unemployment figures (while devastating for Aussie businesses and individuals) paint a picture that's less bleak than expected.
The other bit of good news is the easing of coronavirus restrictions. Australia is slowly coming back to life with many states easing restrictions on gatherings. That's good news for operators in some of the hardest-hit sectors like domestic travel, hospitality and leisure.
There's a long way to go, but the ASX 200 has been climbing higher due to some broader positivity. Share markets are inherently forward-looking, which means investors are pricing in the future rather than the present.
However, there's another big factor driving the ASX 200 higher right now: money supply. The Reserve Bank of Australia has injected a lot of cash into the economy while the official interest rate is sitting at 0.25%. That means high-interest savings accounts are starting from as little as 0.01% right now.
So, if you're looking to invest your money, a savings account doesn't seem like a great return on investment. It's a similar story with term deposit rates, while bonds are yielding very little. Property in most Aussie towns and cities is very expensive right now, which makes it inaccessible to many investors.
That leaves us with ASX 200 shares. Those Aussies who are still working throughout the pandemic are putting their spare cash into shares to get some sort of return on investment. That's helping boost the share market higher despite concerns over economic growth, migration and other factors hampering the economy.
