Why we’re on track for more record ASX share prices

A look at share price performance on the ASX yesterday may have you wondering why the stars are still aligned for record ASX share prices.

We’ll get to that in a moment. But first a quick glance backwards.

Yesterday, the S&P/ASX 200 Index (ASX: XJO) tumbled 1.8%. That brought the index of the largest 200 listed ASX shares back to where it was a month ago, on August 3.

Buy now, pay later (BNPL) giant Afterpay Ltd (ASX: APT) counted among the biggest losers, down 8.4% yesterday. And in late morning trade today, the Afterpay share price is down another 1.5%.

Afterpay’s share price – and other ASX-listed BNPL shares like the Sezzle Inc (ASX: SZL), down 26% since Monday’s opening bell – are under pressure from PayPal. This comes after the payment giant announced it’s launching its own BNPL platform in the United States called Pay-in-4.

So much for moats…

Back to today, the ASX 200 is up 1.6% in late morning. It may well recoup all of its losses from yesterday, and more.

But here’s the thing.

These daily moves in the ASX are mostly just noise. It’s the longer-term trend that matters. And longer-term, the momentum is upwards. The average share price recovery of ASX shares since the March lows remains firmly in place, with the ASX 200 up 33% since March 23.

Marching to new record ASX share prices

From today’s levels, the ASX 200 needs to gain roughly 19% to exceed its February 20 highs.

In normal times, that’s a tall order. But these are anything but normal times.

With global governments and central banks in a co-ordinated effort to stave off the economic damage from COVID-19, there’s every reason to believe the ASX 200 could top 7,200 points by Christmas.

We’ll give a passing nod to the massive stimulus being pumped out in China, Japan, Europe and much of the rest of the world and focus in on the US and Australia.

Tailwinds in Australia

As you likely know, the Reserve Bank of Australia (RBA) had its monthly powwow yesterday, as it does on the first Tuesday of every month. As expected, the official cash rate will remain at its rock bottom 0.25% for the foreseeable future, a great tailwind for shares.

What was more than many expected was the huge increase in the RBA’s Term Funding Facility, which lends to banks at a 3-year fixed rate of 0.25%. That funding has now increased to $200 billion.

To date, the banks have drawn about $52 billion under the facility since March. This is money that will support households and business and, you guessed it, share prices.

RBA governor Philip Lowe also highlighted the bank’s resolve to do whatever it takes, for however long it takes, to get the Aussie economy back on track. Lowe said: “The board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measures could support the recovery.”

Judging by the strong performance of the ASX today, investors certainly took note.

US share markets at new all-time highs … again

While the ASX 200 still has a hill to climb before hit new record highs, US markets are breaking records almost every day.

The strength of the underlying shares certainly deserves its own credit. But the rally is also being propelled by record stimulus.

US Republicans and Democrats are still debating the details of the next relief, but it promises to be huge. US Treasury Secretary Steven Mnuchin indicated the economy is in direct need of fiscal stimulus. The Republican package looks to be in the range of US$500 billion. The Democrats appear to be holding out for more.

In the meantime, Bloomberg reports that, “The Federal Reserve has snapped up $1 trillion of mortgage bonds since March, a record pace of purchasing … It now owns almost a third of bonds backed by home loans in the US”

This has effectively pushed mortgage rates down in the US, supporting the crucial economic component of consumer spending.

In yesterday’s trading (overnight Aussie time), the S&P 500 Index (INDEXSP: .INX) and Nasdaq Composite (INDEXNASDAQ: .IXIC) both closed in record territory again. The tech heavy Nasdaq is now up 31% in 2020, and up 74% from its March 23 low.

Another healthy diversification reminder

This offers another good reminder of why you should consider investing some of your share market funds outside of the ASX.

Don’t get me wrong, there are plenty of great shares on the ASX. And if you want exposure to the booming US tech shares, you can do so right here on the ASX with the Betashares Nasdaq 100 ETF (ASX: NDQ).

The exchange traded fund (ETF) comprises the 100 largest, non-financial businesses on the Nasdaq. Its top holdings include all the FAANG stocks and a raft of other big players.

The ETF’s share price is up 2.7% in intraday trading today. Year-to-date the share price is up 32%.

The Motley Fool’s own Scott Phillips cottoned on to the potential of this ASX-listed investment more than 3 years ago. He recommended it on 22 June 2017 to members of his Share Advisor service. Since then the share price is up more than 117%.

And Scott still maintains a buy rating on the ETF, believing technology shares have a lot more gains ahead.

More reading

• Here’s why the Sezzle share price crashed 37% lower in just a few days
• UBS picks the best and worst ASX stocks from the reporting season
• Why the Zip share price is plummeting 15% today
• ASX 200 jumps 1.6%: Afterpay tumbles, IOOF crashes, CBA pushes higher
• Why Afterpay, IOOF, Redbubble, & Zip shares are dropping lower

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS and Sezzle Inc. 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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