Have ASX investors given up?

Despite a solid quarterly update by Woolworths Limited (ASX: WOW), including the first quarter of positive same-store sales since March 2015, the retailer’s shares have closed down 2.3% at $24.23.

Is it a sign that investors are apathetic about the result? Or perhaps investors have become so overcome with despair that even good news seems like bad news.

Over the past three months, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has dropped 4.7%, and even the S&P/ASX Small Ordinaries (Index: ^AXSO) (ASX: XSO) has gone backwards.

AMP Capital’s Shane Oliver reckons there are several reasons why the market has slumped:

  1. Concerns about the US Federal Reserve and whether they will raise interest rates this year. An interest rate rise is unlikely to be good news for stock markets.
  2. Worries over the US election and the potential consequences.
  3. A reversal of the huge bond rally that has helped the higher dividend paying Australian sharemarket and sectors like property trusts in the first half of the year.
  4. A soft patch in consumer spending is weighing on retailers.
  5. Stock specific issues, like Australia and New Zealand Banking Group (ASX: ANZ) taking a $360 million hit in the second half of its financial year and cutting its first-half dividend for the first time in several years. Slower growth at conglomerate Wesfarmers Ltd (ASX: WES) also saw its share price take its biggest hit in years.

According to Mr Oliver, the bond bull market is over as global inflation bottoms out, and we could see central banks around the world start raising interest rates. Locally, the Reserve Bank is expected to sit on its hands next week when it meets and keep the official cash rate at 1.5%.

Mr Oliver says defensive yield sectors are now getting oversold and cyclical sectors have more upside if we continue to see moderate economic growth both in Australia and overseas. That could be likely why Woolworths saw its share price tumble today, despite evidence of a turnaround in its supermarket business.

The selling could also represent an opportunity for investors. Retailer the Reject Shop Limited (ASX: TRS) has seen its share price crash more than 30% in the past few months, for no apparent reason – and despite a positive update on the start of the new financial year in August. At the current share price of $7.40, the company is trading on a P/E ratio of 10.2x and a fully franked yield of 5.9% even with forecasting a better year ahead.

Don’t give up. Now might just be the perfect time to top up on shares that have been sold off.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers Ltd. You can follow Mike on Twitter @TMFKinga

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 Bruce Jackson.

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