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The US sneezes and the ASX catches a cold

Friday’s falls on Wall Street have been breathlessly reported repeatedly over the weekend, and again this morning.

For the record, the Dow Jones Industrial Average fell 2.2%, the S&P 500 Index dropped 2.5% and the Nasdaq Composite gave up 2.8% on Friday trading in the United States (Friday night our time).

Roll out the headlines: ‘the worst percentage fall since…’, ‘the biggest points fall since…’ and a personal favourite ‘$x billion lost in market rout’ – or similar.

Nothing sells like doom and gloom does it? Actually, one thing sells better – reports of losses in the billions of dollars.

Newspapers and television news need to get readers and viewers – and as consumers, we can’t help ourselves. We are drawn towards stories of loss and horror. They are giving us what we want. Good news doesn’t sell, I’m afraid.

We’re likely to see falls on our market, with the ASX SPI down 58 points to 4012 points, representing a loss of 1.4% – and expectations are that the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and the All Ordinaries (Index: ^AORD) (ASX: XAO) will suffer steep falls at the open.

Attention is now turning to what the Reserve Bank of Australia will do with interest rates, with opinion seemingly split between a 25 basis point cut and a 50 basis point cut at the next meeting.

That represents good news for our banks, including ANZ (ASX: ANZ), Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac (ASX: WBC), who will likely keep some of any cut for themselves (and the smaller banks such as Bank of Queensland (ASX: BOQ) and Bendigo & Adelaide Bank (ASX: BEN) who can equally use some margin padding.

The other cheerleaders hoping for a larger cut will be our retailers – particularly those in ‘discretionary’ retail who have been hardest hit by the consumer spending downturn. David Jones (ASX: DJS) and Myer (ASX: MYR) will likely be at the head of that queue, with major retailers Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) close behind, hoping that wallets will open in their Big W (in Woolworths’ case) and Kmart and Target (Wesfarmers) cases. Even the likes of OrotonGroup (ASX: ORL) and Noni-B (ASX: NBL), which have weathered the recent storms better than most, will be hoping for a large cut.

With all of the fear in the market today, there will be many investors heading for the exits and shares are likely to open lower. That presents opportunities for patient investors to take advantage of the panic and scoop up some bargains. With the All Ordinaries trading at a price/earnings ratio unseen in a decade (outside of the six months to February 2009), bargain hunters will be busy today.

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Scott Phillips is an investment analyst with The Motley Fool. He owns shares in David Jones, Woolworths and OrotonGroup. You can follow Scott on Twitter @TMFGilla. Take Stock is The Motley Fool Australia’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).

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