By Arthur Dos Santos, Masai Gordon, and Adam Prince

The COVID-19 pandemic caused a rapid and severe economic downturn in the United States. The real GDP per capita, which was $58,490 in quarter 4 of 2019, dropped to $57,691 in quarter 1 of 2020, and once more to $52,387 in quarter 2 of the same year. This steep decrease in real GDP per capita was measured at a growth rate of -24.7%; ‘for comparison, the annualized growth rate from [quarter 4 in 2007] to [quarter 2 in 2009], a peak‐to‐trough known as the Great Recession, was just -3.7%,’ (Cachanosky et al. 2021). These findings speak to the severity of the ‘COVID recession’, which had a negative growth rate of nearly 7 times that of the Great Recession. 

The federal government responded by passing two major fiscal stimulus packages to alleviate the economic issues of the pandemic: the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, and the American Rescue Plan Act (ARPA) on March 11, 2021. These policies targeted household income, supporting businesses, public health infrastructure, and broader economic stability. So, they included direct stimulus payments to individuals, more unemployment benefits, loans and grants to businesses, and funding for public health. By supporting consumers and providing businesses some financial relief, they helped demand and reduced uncertainty. Fiscal policies like these can support the stock market by stabilizing the economy overall, raising investor confidence, and directly helping firms during crises. 

Given the large and deep impact of this economic shock, our study examines how fiscal policies such as the CARES Act and ARPA impacted stock indices (S&P 500, NASDAQ 100) and the broader economy (real GDP per capita). We hypothesize that the implementation of these fiscal policies increased the value of both the S&P 500 and the NASDAQ 100 and increased the real GDP per capita. Specifically, we examine whether these stimulus efforts helped U.S. economic recovery and investor confidence in the short term. Understanding the impact of these fiscal interventions is important because it shows us how they can influence economic recovery, investor behavior, and market performance during crises, while also informing future policymaking and investment decisions. 

Data Analysis

The S&P 500 tracks the stock performance of 500 of the largest companies in the United States. Within the first month of the CARES Act, we found that the stock index rose from 2,630 index points to 2,878 index points, an increase of 248 index points, or approximately 9.4%. Similarly, the stock index rose from 3,943 index points to 4,127 index points within one month of ARPA being enacted, an increase of 184 index points, or 4.7% (Figure 1). 

The NASDAQ 100 stock index is composed of 100 of the largest non-financial companies listed on the NASDAQ stock exchange. Within a month of the implementation of the CARES Act, the stock index rose from 7,897 index points to 8,837 index points, which is an increase of 940 index points or 11.9%. Once again, we observe a rise in the stock index within a month of ARPA being enacted, rising from 13,052 index points to 13,819 index points, an increase of 767 index points, which is 5.9% (Figure 2).

To assess how the broader economy recovered, we look beyond stock market performance and examine the effects on the real GDP per capita. After the implementation of the CARES Act in 2020 Q1, real GDP per capita increased from $57,440 to $61,906 in Q2 and Q3, respectively, which is an increase of roughly $4,500 (7.8%). After the implementation of the ARPA in 2021 Q1, real GDP per capita increased from $64,383 in quarter 2 to $64,850 in quarter 3, a mere increase of $467, or 0.7% (Figure 3).

Our findings suggest that both the CARES Act and ARPA had a positive economic impact on the stock indices and the real GDP per capita, but that the CARES Act seemed to have a more drastic positive effect on those indicators than ARPA did. We believe that the CARES Act had a larger positive impact than ARPA because it was one of the first fiscal policies that was implemented in an attempt to stabilize the economy during the COVID recession, whereas ARPA was implemented a year later. Another reason that the CARES Act had a larger positive impact on our specific indicators than ARPA did is because it focused on funding for businesses, allocating $500 billion for ‘distressed businesses’ and $350 billion for ‘small businesses’ (TaxSlayer Pro 2021). ARPA, on the other hand, focused on funding for ‘state, local, and tribal governments’ (TaxSlayer Pro 2021). The direct support that the CARES Act provided to the private sector helped stabilize financial markets, leading to sharper improvements in the stock indices and real GDP per capita.

Conclusion

We observed how fiscal policies such as the CARES Act and ARPA affected the S&P 500, NASDAQ 100, and the real GDP per capita during and after the COVID-19 recession. As a result of our analysis, we believe that the fiscal policies had an immediate positive impact on stock indices and GDP. Of course, this conclusion is based solely on the trends observed in our graphs and doesn’t include many other macroeconomic variables, one being monetary policy. Future research could incorporate how monetary policy interacted with fiscal policy during this period to shape market behavior and recovery. Another direction could be to take a deeper dive into sectors that responded differently to the fiscal policies, as not all were affected the same. These additions would deepen our understanding of how policies affected the economy during the COVID recession. Overall, our findings demonstrate the role that timely fiscal policies can play during crises in helping economic recovery and stabilizing markets.

References

1. Cachanosky, Nicolás, Bryan P. Cutsinger, Thomas L. Hogan, William J. Luther, and Alexander W. Salter. 2021. “The Federal Reserve’s Response to the COVID-19 Contraction: An Initial Appraisal.” Southern Economic Journal 87 (4): 1152–1174. https://doi.org/10.1002/soej.12498.
2.  NASDAQ OMX Group. 2025. NASDAQ 100 Index (NASDAQ100). Retrieved from FRED, Federal Reserve Bank of St. Louis. March 5, 2025. https://fred.stlouisfed.org/series/NASDAQ100.
3. S&P Dow Jones Indices LLC. 2025. S&P 500 (SP500). Retrieved from FRED, Federal Reserve Bank of St. Louis. March 5, 2025. https://fred.stlouisfed.org/series/SP500.
4. TaxSlayer Pro. 2021. “How the CARES Act and American Rescue Plan Act (ARPA) Intersect.” TaxSlayer Pro’s Blog for Professional Tax Preparers. April 22, 2021. https://www.taxslayerpro.com/blog/post/cares-act-arpa-intersect.
5. U.S. Bureau of Economic Analysis. 2025. Real Gross Domestic Product per Capita (A939RX0Q048SBEA). Retrieved from FRED, Federal Reserve Bank of St. Louis. March 5, 2025. https://fred.stlouisfed.org/series/A939RX0Q048SBEA.