The S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) have both tumbled more than 7% over the past 4 trading sessions. This follows an increase in coronavirus cases and a grim economic outlook announced by the United States Federal Reserve last Thursday.
With all things considered, should investors be buying ASX shares during this recent market selloff?
The bad news
Coronavirus infections continue surging
From a global perspective, the coronavirus pandemic is still running rampant. The US experienced a record number of new cases across multiple states last week. State health officials are pointing to an increase in gatherings over the Memorial Day holiday as a catalyst for this increase.
South America has also seen a surge in cases with daily infections surpassing those in Europe and the US. The World Health Organization declared the region the pandemic’s ‘new epicentre’ on 22 May.
China reported its highest daily increase of coronavirus cases in 2 months, with 57 new confirmed cases over the weekend. The cases identified in Beijing have been linked to its biggest wholesale food market, which has since been shut down.
I believe the recent selloff combined with fresh news that the pandemic is not showing signs of slowing down will add to the uncertainty and panic in the markets.
Unemployment crisis
The US Fed updated its economic projections for the year, predicting a 6.5% drop in its GDP. It also estimates an unemployment level by the end of the year of approximately 9.3%. Whilst this is still dire, it is less than the 13.3% seen in May.
Australia is in much better shape, with a seasonally adjusted unemployment rate of 6.2% in April. However, much of this can be attributed to the JobKeeper stimulus package that is assisting many businesses to retain their employees in what are extremely tough times.
On Monday morning, prime minister Scott Morrison warned that some businesses will fail when JobKeeper is withdrawn. This creates a lot of uncertainty, and businesses will no doubt be more cautious with spending moving forward.
Patience is needed
This is a unique recession, in that it came about because an economic shutdown was required to prevent the spread of the virus. Should the pandemic subside, there is no reason why the economy can’t return to a pre-COVID-19 state. The amount of money going into the economy via quantitative easing is both greater and faster than the responses to crises such as the GFC. Interest rates are still at a record low and will be low for many years to come.
Australia is also one of the leading countries to come out of COVID-19 largely unscathed. However, it is the rest of the world that we are waiting on to resume activity in key sectors such as education and travel.
Foolish takeaway
I believe that it is a good idea for investors to be patient and wait for the current market volatility and uncertainty to subside before jumping in and buying ASX shares.
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More reading
- The ASX winners and losers from the latest S&P index shake-up
- 3 Warren Buffett quotes to start your week off right
- Shares up? Haven’t you seen the economy?
- These 5 ASX shares were last week’s worst performers
- Why the Reliance Worldwide share price is outperforming today
Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. 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 Scott Phillips.
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