The ASX 200 has relinquished its gains achieved over the prior six months in a mere 17 trading days, reflecting a sharp shift in investor sentiment. This reversal coincides with market jitters stemming from Donald Trump’s economic agenda and concerns raised during the February earnings season. While the ASX 200’s 7.8% decline from its peak is less severe than the S&P 500’s 8.6% drop, it underscores the interconnectedness of global markets and the vulnerability of Australian equities to US economic trends.
Several factors contribute to this market correction. Like the US market, the ASX 200 entered the year with elevated valuations. Despite the recent selloff, the ASX 200 still trades at a forward earnings multiple of 17.3x, exceeding its decade average. Moreover, the dividend yield of 3.7% is significantly below its historical average. Similar to the US market’s reliance on tech stocks, the ASX 200’s gains were concentrated in a few bank stocks and blue-chip companies. However, these trends have reversed, with key stocks experiencing declines. Investors are reassessing the attractiveness of high-multiple bank stocks with limited growth potential. The increasing consensus is that instability is the new normal, making investment decisions more challenging.
