Since just yesterday, I think there has been a fundamental shift in how the markets will go forward in 2020.
Yesterday morning, we weren't certain that the Reserve Bank of Australia (RBA) would cut interest rates to yet another record low. We didn't know that the US Federal Reserve would jump in with an 'emergency' out-of-cycle 50 basis point cut to their own interest rates.
Markets had been rallying on the expectation that they might.
But then the RBA did cut rates.
And this morning, we woke up to the news that the Fed had dramatically followed suit.
But what was striking was that the US Dow Jones Industrial Average has tumbled nearly 3% on the news. Our own S&P/ASX 200 Index (INDEXASX: XJO) has dutifully followed and is down 1.83% to 6,318 points at the time of writing.
That's not supposed to happen! Most interest rate cuts over the past few years have been met with downright euphoria by the markets.
Is this time different?
Perhaps it was the urgency of the Fed's cut that has investors spooked. The coronavirus is, of course, a very serious problem for the global economy and it's too soon to tell how long it will be impacted by the disease.
But what I think is truly striking about what has happened in the last 24 hours is the realisation that this time, rate cuts might not be enough to save the US share market – and by extension, the ASX.
And if rate cuts have suddenly lost their potency, there's not too much that would stand in the way of further market pessimism in the current climate.
So strap in, we might be in for a bumpy ride!
How should we invest in ASX shares, then?
By sticking to the fundamentals, of course! In good times and bad, I think the best way of investing in ASX shares is by looking at how much cash a company is making, how much it will likely make in the future and paying an appropriate price for what you find.
Some ASX companies will be affected by the virus, but many won't be. If those companies that you deem less risk-prone become cheap, it might be time to invest!
The only certain thing that you can bring to the ASX's table today is selling your shares out of panic is a sure way to lose money! So, I wouldn't recommend following the crowd and hitting the sell button just because 'things might get worse'.
