Why is the ASX 200 ending the week with a whimper?

The ASX 200 is taking a beating on Friday. But why?

| More on:
A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After setting a series of new all-time highs in March, April is offering a more difficult first week for the S&P/ASX 200 Index (ASX: XJO).

In this shortened holiday trading week, the benchmark index closed down 0.1% on Tuesday before plunging 1.3% on Wednesday.

Yesterday saw a reprieve, with the index closing up a healthy 0.5%, bringing it back to a 12.9% six-month gain.

Created with Highcharts 11.4.3S&P/ASX 200 Price Return (AUD) PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

So, why is the ASX 200 reversing course again and tumbling 0.9% in morning trade today?

What's spooking ASX 200 investors on Friday?

It's not just the ASX 200 under selling pressure today.

Overnight the S&P 500 Index (SP: .INX) closed down 1.2%. Notably, the S&P 500 was well into the green for most of the day, before plummeting 1.8% in the final two hours of trade.

It was a similar picture on the Nasdaq Composite Index (NASDAQ: .IXIC). The tech-heavy index lost 2.3% in the final two hours of trade to close the day down 1.4%.

And the ASX 200 is facing the same combination of headwinds today that dragged down US markets while most of us were asleep.

Interest rates and inflation

The first bugbear dragging on stock markets is becoming a familiar refrain for ASX 200 investors.

Namely sticky inflation and the resulting potential of delayed and fewer interest rate cuts.

The latest round of jitters looks to have been stoked by US Federal Reserve Bank of Minneapolis president Neel Kashkari.

Kashkari said the US' inflation data in January and February were "a little bit concerning". He added that the Fed will want to be more confident inflation is on track to return to its 2% target range before lowering interest rates.

And he likely sent US and ASX 200 investors to their sell buttons when he added that rate cuts might not be needed "at all".

According to Kashkari (courtesy of Bloomberg):

In March I had jotted down two rate cuts this year if inflation continues to fall back towards our 2% target. If we continue to see inflation moving sideways, then that would make me question whether we needed to do those rate cuts at all.

ASX 200 and the Middle East

Atop fears that interest rate cuts may be longer in coming and fewer in number, ASX 200 investors also appear concerned over a potential serious escalation in the Middle East conflicts.

Commenting on the sudden retrace in US stock markets earlier today, National Australia Bank Ltd (ASX: NAB) said (quoted by The Australian Financial Review), "US equities opened higher and retained their initial gains until an hour or so ago."

NAB continued:

Sentiment was dented following news of a security cabinet meeting in Israel following which Israeli Prime Minister Netanyahu said that his country will operate against Iran and its proxies and will hurt those who seek to harm it.

And if investors need any more uncertainty, there's the US jobs report, which comes out at 11:30am AEDT today.

US employment is broadly expected to remain strong with fewer layoffs and more hirings. If the data surprises to the upside, it could be a case of 'good news is bad news'. Meaning good news for the US economy and workforce could delay any Fed rate cuts.

And that could throw up another medium-term headwind for US stocks and the ASX 200.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Young man with a laptop in hand watching stocks and trends on a digital chart.
Share Market News

Which investment trends drove equity markets in May according to Macquarie?

The ASX 200 increased 4.2% in May.

Read more »

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a miserly session for investors today.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Opinions

Too high? These 2 ASX shares might be due for a correction

These popular blue chips are looking dicey to me.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Broker Notes

These ASX 200 shares could rise 20% to 35%

These shares are being tipped to deliver market-beating returns by analysts.

Read more »

Keyboard button with the word sell on it.
Broker Notes

8 ASX All Ords stocks downgraded to sell ratings

Find out which shares are out of favour with the experts.

Read more »

Woman smiling whilst shopping in a clothing store.
Dividend Investing

Why this quality ASX 300 dividend stock is tipped to surge 54%

A leading fund manager forecasts significant outperformance from this quality ASX 300 dividend stock.

Read more »

A group of businesspeople clapping.
Broker Notes

Bell Potter names more of the best ASX 200 stocks to buy in June

These stocks could be best buys this month according to the broker.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Market News

Why Clarity, Coronado Global, Iperionx, and Lynas shares are roaring higher today

These shares are having a strong session on Thursday. Why are investors buying them?

Read more »