S&P/ASX 200 Index (ASX: XJO) shares are off to a rocky start today.
After closing up a welcome 1% yesterday, the benchmark index is down 1.8% in the early minutes of trade today.
And the tech sector is faring worse than the broader basket of ASX 200 shares.
The S&P/ASX All Technology Index (ASX: XTX) is down 3.3%. That’s after gaining 2.2% in yesterday’s trade.
Why are ASX 200 shares selling off?
Investors down under are selling more than they’re buying today following sharp falls in US markets yesterday (overnight Aussie time).
The losses in US stocks, the biggest single day fall in almost two years, saw the S&P 500 close down 4% while the tech-heavy Nasdaq shed 4.7%.
With Aussie markets tending to take their lead from US markets, you can see why ASX 200 shares are coming under renewed pressure.
So, why did US markets just suffer their worst day in 24 months?
Why the US market rout?
A number of now familiar bugbears came together to shake investor confidence yesterday.
Chief among those, investors are concerned that the US Federal Reserve and other major central banks, including the RBA, will need to raise interest rates faster and sharper than previously expected to bring fast-rising inflation figures back into their target ranges.
With the Russian war in Ukraine and China’s economy crippling COVID-zero battle simmering in the background, investors are now also eyeing the possibility that the US – the world’s biggest economy – could be heading for a recession. A shrinking US economy will throw up additional headwinds for US markets, and for ASX 200 shares.
Recession fears were spurred following a reduced profit forecast from US retail giant Target Corporation (NYSE: TGT), indicating higher prices may be hitting consumers where it hurts. Shares of Target crashed 24.9%, the worst day of trading for the company since 1987.
What the pros are saying
Commenting on the sharp selloff, Ryan Detrick, chief market strategist at LPL Financial said (quoted by Bloomberg):
Worries over inflation and a hawkish Fed are nothing new, but now add in worries over profit margins and the impact of inflation on the consumer and you have the recipe for a big down day.
Lori Calvasina, head of US equity strategy at RBC Capital Markets added:
We are pricing in a growth scare. The market is trying to find a bottom here. There is a lot of uncertainty in this market right now about whether or not that recession is going to come through or if it’s going to be another near-death experience.
Calvasina may have hit the nail on the head there. If there’s one thing markets dislike, it’s uncertainty as witnessed by the selloff in ASX 200 shares today.