How does fiscal stimulus impact ASX share prices?

Join us as we assess how ASX share prices react to fiscal stimulus packages – from here and abroad.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

More on Share Market News

Contented looking man leans back in his chair at his desk and smiles.
Share Market News

5 things to watch on the ASX 200 on Thursday

Here's what to expect on the local market today.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Broker Notes

These ASX 200 shares can rise 20% to 50%

Let's see which shares are being tipped to rocket from current levels.

Read more »

The silhouettes of ten people holding hands with their arms raised against the sky, as the sun rises or sets in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors panicked when the latest inflation figures came out today.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Broker Notes

Why Guzman Y Gomez shares are a sell

Goldman Sachs has given its verdict on the burrito seller.

Read more »

A man pulls a shocked expression with mouth wide open as he holds up his laptop.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Share Gainers

Why Mac Copper, Pro Medicus, Web Travel, and Yancoal shares are pushing higher today

These shares are having a good time on hump day. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why ALS, Fisher & Paykel Healthcare, IPD, and Predictive Discovery shares are falling today

These shares are having a tough time on hump day. But why?

Read more »

Man looking at his grocery receipt, symbolising inflation.
Share Market News

How are ASX 200 investors responding to the latest Aussie inflation numbers?

The ASX 200 was up 0.2% today before the ABS reported the latest inflation figures.

Read more »