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.

More reading

• Why MOAT is my favourite ASX ETF
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?
• ASX 200 falls 2%, ASX travel shares drop heavily
• Clinuvel share price jumps as investors favour healthcare
• Should you buy ASX shares during this market selloff?

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.

The post Why the ASX 200 tumbled lower on Monday and 2 shares to buy appeared first on Motley Fool Australia.

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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. 

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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If you’re looking for strong returns in the 2020s, then I think having a little exposure to the small cap side of the market could be a good thing.

At this side of the market there are a number of companies that have the potential to grow materially over the next decade.

While it is worth remembering that not all small cap shares will live up to their potential, I feel the two listed below have a good chance of doing so. Here’s why I think they could have bright futures:

ELMO Software Ltd (ASX: ELO)

ELMO Software is a fast-growing provider of cloud-based human resources and payroll software. Its increasingly popular unified platform allows users to streamline processes for everything from employee administration, recruitment, and payroll. Demand for its offering has continued to grow in FY 2020, with management recently providing full year guidance for annualised recurring revenue (ARR) of $55 million to $57 million. This represents an increase of 20% to 24% on the prior corresponding period. The good news is that its current ARR is only scratching at the surface of its total addressable market in the ANZ region. This means it still has a significant runway for growth in the local market and also the opportunity to expand into other key markets in the future.

Mach7 Technologies Ltd (ASX: M7T).

Mach7 is a medical imaging data management solutions provider for healthcare organisations. Its solutions create a clear and complete view of the patient to inform diagnosis, reduce care delivery delays and costs, and improve patient outcomes. Demand for Mach7’s offering has been growing strongly in recent times, leading to the company delivering a 158% increase in revenue to $9.1 million during the first half. I’m confident there will be more strong growth in the years to come, especially after its recent acquisition of Client Outlook. The addition of this leading provider of an enterprise image viewing technology increases Mach7’s total addressable market from US$0.75 billion to US$2.75 billion.

More reading

• Mach7 share price charges 7% higher on acquisition news
• Why Mach7, Meridian, Spark, & TPG Telecom are pushing higher
• ELMO Software share price on watch after upgrading FY20 guidance
• ELMO Software and 2 other ASX growth companies see businesses adapt to a “new normal”
• 3 small cap ASX tech shares that could be stars of the future

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 MACH7 FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended Elmo Software. 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.

The post Why you should watch these ASX small cap shares closely in the 2020s appeared first on Motley Fool Australia.

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