The S&P/ASX 200 Index (ASX: XJO) market sell-off appears to have stalled with a potential rebound now in effect.
As the chart below shows, ASX 200 shares have endured four consecutive weeks of falls.
The benchmark index fell 9.43% from its record high on 14 February to what may have been the trough last Thursday.
This left the ASX 200 teetering on the edge of an official market correction, which is defined as a 10% fall from the most recent peak.
But the benchmark index began lifting again last Friday, closing 0.52% higher at 7,789.7 points.
Yesterday, the ASX 200 closed up 1.02% at 7,854.10 points.
Today, the ASX 200 is currently just inside the green, up 0.014% to 7,855.2 points.
Time will tell if this is a permanent turnaround.
Image source: Getty Images
What drove the market sell-off?
The biggest contributor to the market sell-off has been crumbling market sentiment as US President Donald Trump rolls out new tariffs.
The decision to impose tariffs goes against decades of trade cooperation between many Western nations.
We could well see a global trade war ensue, and that doesn't bode well for many businesses, not to mention the global economy.
The tariff disruption comes at a time when it appeared the global fight against COVID-driven inflation was largely over.
Last year, many countries, including the US, began cutting interest rates as inflation fell to acceptable levels.
Now there is concern that tariffs will eventually flow through to US consumer prices and reignite inflation in the world's largest economy.
All of this has made investors nervous, leading to falling confidence and a stock market sell-off in the US, with the ASX 200 following suit.
Last week, US President Donald Trump admitted there could be a "period of transition" as he imposes tariffs on many trading partners.
Trump said this in response to a TV journalist who asked him whether he expected a US recession this year.
The US stock market officially entered a market correction last week.
Analysts have been quick to reassure ASX 200 shares investors that market corrections are a normal part of the cycle.
Remember, this short, sharp correction occurred after the US and Australian share markets reached all-time record highs last month.
It's not uncommon to see markets cool off a bit after strong bull runs.
On top of that, nothing tangible has happened to justify this sell-off. It's largely the result of falling market sentiment.
Markets are fearful of what may happen as a result of tariffs. They are not reacting to any hard evidence of a negative impact.
Trump's unpredictable nature is also creating uncertainty, and markets do not cope well with uncertainty.
Until he's made all the decisions he's going to make on tariffs, the markets are in 'wait and see' mode.
That means markets are nervous, and that means volatility for stocks.
AMP chief economist, Dr Shane Oliver, said:
The main threat to Australia comes from Trump's trade war leading to a hit to global trade and growth leading to less demand for our exports. And this is largely why our share market has had a similar sized fall to the US share market.
