The Australian share market experienced a significant sell-off on Friday, triggered by diminished expectations of aggressive interest rate cuts from central banks. The S&P/ASX 200 Index plunged 1.4 per cent by midday, reaching its lowest level since mid-July, wiping out $37 billion in market value. The bourse is now on track for its largest weekly decline since March. A group of previously popular small-cap stocks further extended their losses, reflecting a broader shift in investor sentiment. For example, DroneShield, which develops drone security solutions, initially recovered after a sharp fall on Thursday when investors learned of director stock sales, but volatility remains high.
The local market’s downturn mirrored a difficult session on Wall Street, where technology stocks weighed heavily on the S&P 500 and Nasdaq. Bitcoin also experienced a substantial drop, falling as much as 3.9 per cent. Concerns are rising around stretched valuations. Domestically, hopes for another rate cut by the Reserve Bank of Australia (RBA) were dampened by a surprisingly strong jobs report, showing unemployment dipping to 4.3 per cent in October.
This data prompted National Australia Bank (NAB) to remove its forecast for a final rate cut in May, indicating expectations for no further easing in the current cycle. “Yesterday’s data … will keep the RBA concerned that domestic conditions are too tight to be consistent with inflation returning to the midpoint of the target band,” said NAB head of FX strategy Ray Attrill. A diminishing outlook for rate cuts accelerated the sell-off in speculative areas of the Australian share market, impacting small-cap stocks already pressured by recent ASX announcements.
The sudden reversal is indicative of a broader trend where high momentum stocks are being sold off. Bank of America’s basket of high-momentum stocks experienced its worst day since April, highlighting the de-risking activities of traders. Chris Weston, head of research at Australian broker Pepperstone, suggested that Nvidia’s upcoming earnings report could prompt traders to lock in performance and reduce risk exposure until year-end.
