A combination of increasing doubts about interest rate cuts, worries about AI overvaluation and a share crunch on Wall Street combined to strip four months of growth off the Australian share market.
By the close of trade on Friday the Australian share market had copied Wall Street's biggest one day decline in a month with the ASX 200 index falling 1.4% or 118.9 points to just 8634.5 points – a level last visited in mid-July.
That means that the index has fallen a hefty 1.5% in the past week, helped by a surprisingly strong jobs report which smashed hopes that there may be another interest rate cut by the Reserve Bank of Australia.
Bond traders are now putting just a 40% chance on the likelihood that official rates will fall to 3.35% by the middle of next year.
Halfway to a correction
The share price crunch represents a hefty 5% market fall since the record peak set last month, halfway to a correction although the response has not been even across market sectors.
All except one of the 11 sectors were lower yesterday with energy the only positive sector on Friday with a 0.2% rise.
However, the trends over the past month tell a more nuanced story.
The information technology sector is down a hefty 18.6% for the past month, while some sectors such as utilities (1.7%), materials (0.5%) and energy (8%) were still up for the month.
Even the recent crunching of the banking sector was only enough to see the financial sector fall 3% over the month.
Which bank?
Still, it was a tough day on Friday with banks taking a real beating, particularly market leader Commonwealth Bank (ASX: CBA) which lost 1.8% to $157.30, representing an 11% loss for the week.
That is the bank’s biggest downturn for two years which is more significant given its market darling status which saw it seemingly defy financial gravity for many months.
The other banks dutifully followed with ANZ (ASX: ANZ) down 2.6% to $35.99, National Australia Bank (ASX: NAB) also lost 1.7% to $41.48 and Westpac (ASX: WBC) fell 1.6% to $38.81.
Tech darlings cop it
The technology sector’s 4.4% fall saw some former market darlings take some damage with Life360 (ASX: 360) down 6.7% to $37.12 and Megaport (ASX: MP1) had a 10% haircut to $13.72.
One tiny bright technology spot was a rebound in Droneshield (ASX: DRO) which climbed 3.6% to $3.13, although even that meant the defence technology stock closed down more than 27% for the week.
The big miners were also taking some heat with Rio Tinto (ASX: RIO) down 1.4% to $131.85, BHP (ASX: BHP) down 1.3% to $42.75.
Fortescue (ASX: FMG) dropped 1% to $20.23 while South32 (ASX: S32) fell 3.4% to $3.17.
Not even a rise in the gold price was enough to bring any joy to the gold mining shares, with Evolution Mining (ASX: EVN) down 2.4% to $11.57, Newmont (ASX: NEM) fell 3.4% to $138.100 and Northern Star (ASX: NST) fell 1.9% to $26.50.
A 1.2% rise for Santos (ASX: STO) and 0.3% rise for Woodside (ASX: WDS) helped the energy sector to an overall 0.2% rise.
The Week Ahead
The coming week will really put some meat on the bones of market worries about the future for official interest rates both here and in the US.
On Tuesday the minutes from the last Reserve Bank meeting will be released, with the decision to hold rates steady in the face of higher inflation perhaps being fleshed out some more.
Likewise, the minutes from the US Fed’s meeting which decided to cut rates by 25 basis points should provide some more insight into what this fairly divided board are now thinking about any further cuts in the future.
The now solved US Government shutdown has meant that markets are operating without many of the usual economic releases so an upcoming data dump could add to the confusion on inflation and the direction of interest rates.
Investors have had to adjust their original thinking that rates would steadily head down in the coming year to a situation in which rates might hold steady or even increase to ward off a fresh bout of inflation.
That is quite an adjustment and has added a lot of caution into the way markets have been trading.
Other announcements to watch out for include wage figures locally and in the US figures on employment, manufacturing and housing.
