MENU

What the RBA’s interest rate cut means for ASX investors

The Reserve Bank of Australia’s decision to slash interest rates by 50 basis points has many investors wondering what it means to their portfolio.

Our short answer? Not a lot.

The honest truth is that over the long term there will be lots of rate increases and decreases — the worst thing an investor can do is jump at short-term issues.

Are banks like Commonwealth Bank of Australia (ASX: CBA), Westpac (ASX: WBC), National Australia Bank (ASX: NAB), Bank of Queensland (ASX: BOQ) and ANZ (ASX: ANZ) any more valuable today than they were last week?

There are so many moving parts to a bank that it’s virtually impossible to predict how one interest cut might affect any estimates of their fair value.

What about retailers like David Jones (ASX: DJS), Myer (ASX: MYR), JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN)?

Sure, consumers might be tempted to prize open their wallets and purses a fraction, but is that going to change the long-term structural challenges these brinks and mortar retailers face?

Of course there will be benefits and costs for different businesses.

But, the same will be true in reverse when rates go back up — and they will!

The market is rarely rational. As investors, we’re hoping to get the chance to buy shares in some businesses that end up being sold-off by the market because of irrational short-termism.

As the S&P / ASX 200 (Index: ^AXJO) (ASX: XJO) and the All Ordinaries (Index: ^AORD) (ASX: XAO) take off to a nine-month high, there are fewer obvious profitable opportunities, but all that means is you’ve got to look a little harder — and that’s precisely what Motley Fool Share Advisor Investment Analyst Dean Morel is doing.

The bottom line is we are unlikely to choose stocks just because of the impact of interest rates on their business, But the rate cut does have an impact on the mood of the market. So far it’s up, up and away for the market, but it won’t always be the case.

Don’t forget — interest rates were slashed because the economy is struggling. And don’t expect a V-shaped recovery.

As Wesfarmers (ASX: WES) CEO Richard Goyder said in the Australian Financial Review

“I am not certain we are going to see a quick change in spending habits but it will make a difference to confidence and I think that would be good for the whole economy…because there is a lack of it at the moment.”

When it comes to investing, the same rules apply, interest rate cut or not. Simply buy good companies at cheap prices. Attractive dividend yields are the icing on the cake.

If you’re looking in the market for some high yielding ASX shares, look no further than “Secure Your Future with 3 Rock-Solid Dividend Stocks”. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

Bruce Jackson is The Motley Fool Australia’s General Manager. Bruce has an interest in Wesfarmers, CBA, ANZ, NAB and WBCThe Motley Fool‘s  purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!