Are ASX 200 shares about to take off on another bull run?

The S&P/ASX 200 Index (ASX: XJO) is having a pretty ho-hum kind of day. At the time of writing, it is essentially flat at 6,087 points.

We seem to have struck both a floor and a ceiling for investor sentiment. The ASX 200 has been playing jump rope with the 6,000 point threshold for nearly 2 months now – since it (for the first time since March) hit the psychologically-important milestone in early June. We still remain around 15% off of the pre-crash highs we were seeing back in February.

But reporting in yesterday’s Australian Financial Review (AFR) reckons we might be about to take off on another ASX 200 bull run. Why? Because the federal government has just cleared a massive cloud of uncertainty that might have been holding the markets back.

On Monday, the government announced that its supportive JobKeeper and coronavirus supplement payments are to be extended. JobKeeper will continue on until at least 28 March 2021 (albeit at a lower rate that will come in 2 tiers). Meanwhile, the coronavirus supplement that most other welfare recipients (including those on JobSeeker or Youth Allowance) are receiving will be trimmed to $250 per fortnight come September, down from the current $550.

What does this mean for ASX 200 shares?

The economy is not well right now. Nearly a million Australians are unemployed and it’s these government payments that are holding the economic fort. So up until Sunday, ASX 200 investors and businesses were fearing a ‘fiscal cliff’ in September. This is when the extra payments were due to expire — creating a lot of uncertainty in the markets.

Now that we have the certainty of knowing these payments will be extended and tailored, the AFR is predicting “institutional investors [will] start deploying the cash sitting idle because of uncertainty”.

However, the AFR also notes this may not be a good thing for ASX 200 shares in the long term, pointing to what it sees as “signs of a bubble in certain parts of the market”.

It quotes the legendary investor Warren Buffett:

“Once a bull market gets underway, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In effect, these people superimpose an ‘I-can’t-miss-the-party’ factor on top of the fundamental factors that drive the market.”

Pertinent words indeed from Mr Buffett.

Foolish takeaway

I think the AFR makes some cutting insights here. I do think it’s possible that the markets will push higher from here. But remember, the economy is still very damaged, and the government can’t prop it up forever. Keeping this in mind over the next year or two would be advantageous for all investors in my view.

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• 5 things to watch on the ASX 200 on Thursday
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• Top brokers list the latest ASX small cap stocks to buy today

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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