The United States government has implemented several rounds of stimulus packages in recent years to help struggling individuals and businesses. These packages have had a significant impact on the equity markets, as well as other aspects of the economy. In this article, we will examine the impact of US government stimulus packages on equity market returns and provide actionable guides and concrete examples to put this research into action.
The Great Recession of 2008 was one of the worst economic downturns in US history. In response to the economic crisis, the US government implemented several rounds of stimulus packages, including the American Taxpayer Relief Act of 2012 and the Coronavirus Aid, Relief, and Economic Security Act of 2020. The stimulus packages were designed to help individuals and businesses that were struggling due to the economic crisis. These packages provided tax cuts, increased spending, and other measures to help the economy recover from the recession.
The impact of the stimulus packages on the equity markets has been significant. The packages resulted in an increase in stock prices, as investors felt more confident about the economy’s prospects. Studies have also suggested that the packages may have also led to a decrease in volatility and a decrease in risk premiums for risky stocks. Furthermore, the packages have also had a positive effect on the overall market by increasing liquidity and allowing more money to flow into the markets.
While the stimulus packages have had a positive effect on the equity markets, it is important to note that they are not the only factor that affects stock prices. Other economic indicators, such as interest rates, inflation, and employment levels, also play an important role in determining stock prices. Therefore, it is important to take a holistic approach when analyzing the impact of US government stimulus packages on equity market returns.
Additionally, there are also a few actionable guides that investors can use to benefit from US government stimulus packages. Firstly, investors should take advantage of the tax cuts provided by the stimulus packages. The tax cuts can help to reduce investors’ income tax bills, providing extra funds to invest in the equity markets. Furthermore, investors should also consider investing in sectors that are expected to benefit from the stimulus packages. For example, infrastructure and green energy companies have been expected to benefit from the 2020 stimulus package due to increased government spending on these sectors.
Finally, investors should also consider conducting fundamental and technical analysis of stocks before investing. Fundamental analysis involves examining the financial performance, business strategy, and management of a company to determine its potential as an investment. Technical analysis, on the other hand, involves looking at past stock prices, volume, and other indicators to determine future trends in the markets. Both fundamental and technical analysis can help investors make informed decisions about which stocks to invest in.
In conclusion, the US government stimulus packages have had a significant impact on the equity markets. They have resulted in increased stock prices, decreased volatility, and a decrease in risk premiums for risky stocks. Furthermore, investors can benefit from the stimulus packages by taking advantage of the tax cuts and investing in sectors that are expected to benefit from the stimulus packages. Additionally, investors should also conduct fundamental and technical analysis of stocks before investing.
Concrete resources that are helpful to carry out this research or put it into action include: Investopedia’s guide to Fundamental Analysis (https://www.investopedia.com/financial-edge/0910/Fundamental-Analysis-The-Basics.aspx), Investopedia’s guide to Technical Analysis (https://www.investopedia.com/university/technical/), and The Balance’s Guide to Investing in the Stock Market (https://www.thebalance.com/investing-in-the-stock-market-1030182).
