Since the start of May, the S&P/ASX 200 (Indexasx: ^AXJO) (ASX: XJO) has dropped 4.7% and appears headed for its third consecutive down day today.
The market has also fallen 6.9% since mid-March when it came oh-so-close to marching through the 6,000 barrier. But since then, it's been all downhill. Over the same period however the US Dow Jones index has dropped just 0.9%.
Here're the major reasons why our market is falling:
- The big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) are all technically in a correction, having all dropped by more than 10% since March 19, 2015. NAB is down 13.8% while Westpac has fallen 16%. The big four make up more than a quarter of the index by themselves, so any move they make will be reflected in the overall index.Why have the banks dropped?
Concerns they might be overvalued, over-exposure to Australia's booming property market, proposed changes to capital requirements could see returns drop and consequently their dividends dive, are among the myriad reasons. - Greece. The markets are concerned that Greece will be forced to exit the Eurozone if it can't reach an agreement over the debt and interest payments it owes to international creditors. The government has been locked in discussions for some time now, and the longer the situation remains unresolved, the more jittery markets become.
The major risk to markets if Greece is forced to leave the Eurozone is uncertainty. Markets hate uncertainty, and a country has never left the Eurozone before. Will it happen? That appears highly unlikely and Greece and its creditors are likely to keep kicking the can down the road for some time yet. - US economy and interest rates. US markets are pricing in potential rate hikes by the US Federal Reserve as early as September this year but are concerned that the central bank will act too quickly. Raise interest rates too fast and the recovering US economy could grind to a halt. Markets aren't too keen on that, but they seem to forget the US Fed doesn't want that either.
- The Australian dollar has dropped 4% in the past month to US 77.6 cents. As it keeps falling, international investors are exiting the market, with the lower dollar compounding the falls in stocks like our big four banks. Add a 4% currency fall to a 16% fall in Westpac's share price and you'll understand how international investors might feel.
Where to now?
While most of the above issues remain unresolved, downward pressure on our market is likely to continue. That is until bargain hunters and contrarian investors begin jumping into the market in force, or as these issues are sorted out. Most of all, the market wants to know what the impact will be on our big four banks, and for that we can only wait and see.
