After a reasonably subdued morning of trade, the S&P/ASX 200 Index (ASX: XJO) fell heavily in the afternoon to end the day notably lower.
The benchmark index tumbled a disappointing 2.2% to 5,719.8 points.
Why did the ASX 200 tumble lower?
Australian investors were selling off shares this afternoon after U.S. futures took a sharp turn.
At present, futures contracts are pointing to the Dow Jones opening the day 3.3% lower, the S&P 500 starting the week with a 2.8% decline, and the Nasdaq index opening 2.3% lower.
According to CNBC, stock futures fell heavily amid signs of a second wave of coronavirus cases in the United States as the economy reopens. This follows a spike in cases late last week in a number of states.
President and chief investment strategist, Ed Yardeni, from Yardeni Research, believes that investors got ahead of themselves in respect to the reopening.
Mr Yardeni said, courtesy of CNBC, that: “The meltup may need to take a break, as sentiment has turned too bullish too rapidly. Now that reopening is happening, there’s fear of suboptimal results: less social distancing triggering a second wave of the virus, followed by another round of lockdowns.”
Though, another lockdown seems unlikely based on what Treasury Secretary Steven Mnuchin told CNBC late last week. Mnuchin suggested that shutting down the economy again wasn’t viable and would only “create more damage.”
Is this a buying opportunity for Australian investors?
Unfortunately for Australian investors, we have a tendency to follow the lead of U.S. markets regardless of what is happening over here. This means that if the U.S. does struggle with a second wave, it could weigh on our market in the near term.
However, I wouldn’t let this put you off investing. In fact, I would suggest you look to see if you like the look of any of the shares that have pulled back notably over the last few days.
Companies like Aristocrat Leisure Limited (ASX: ALL) and EML Payments Ltd (ASX: EML), for example, have fallen heavily since last week. I think this could be a buying opportunity for long term-focused investors. I feel both shares trade on attractive multiples relative to their long term earnings growth potential.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia has recommended Emerchants Limited. 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 Scott Phillips.
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