Why has the ASX 200 just hit an 11-month low?

The ASX 200 is almost at a new 52-week low…

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It's been yet another horrid day for the S&P/ASX 200 Index (ASX: XJO) this Monday, giving ASX investors a disappointing start to the trading week.

After losing 1.4% last Thursday and another 1.2% during Friday's session, the ASX 200 has slipped by another nasty 0.89% so far this Monday. That puts the ASX 200 at 6,839.2 points at the time of writing. This is the lowest point the index has plumbed since October 2022. It also puts the fall from the ASX 200's last 52-week high (reached in February) at close to 10%.

Many investors might be wondering why the gains of the first half of 2023 have been erased and why we are back to the same levels we were at this time last year for ASX 200 shares. Although it's impossible to know for sure why the market does what it does, I think there are two underlying factors here.

Why is the ASX 200 at 11-month lows today?

Inflation remains sticky

A few months ago, the consensus on the ASX seemed to be that interest rates would soon begin coming off of the decade-highs we've been enduring for the past few months. The Reserve Bank of Australia (RBA) has undertaken the sharpest series of interest rate rises in history since May 2022.

But sadly, this hasn't seemed to have had the desired effect on inflation that the RBA had hoped. The Australian economy remains extraordinarily resilient, with unemployment still near record lows. However, the latest RBA minutes strongly imply that further rate hikes may be necessary in the near future. Thus, fears over higher rates seem to have taken some of the wind out of investors' sails in recent weeks and months.

Conflict in the Middle East

As most of us would be aware of, there have been tragic events taking place in the Middle East this month. Israel is currently in a state of war with the Gazan militant group Hamas. Further, many commentators fear that a wider Middle East conflict is possible, drawing in other players like the Lebanese group Hezbollah, Iran, and the United States.

Investors hate geopolitical uncertainty, and we have certainly seen a massive surge of this in October so far. Already, we are feeling the effects of the Middle Eastern turmoil in oil prices, which some experts predict could exceed US$100 a barrel in the coming weeks, or even US$150 a barrel if the conflict escalates.

Investors (except those with energy shares of course) hate high oil prices too, since they tend to be a drag on economic growth.

Should we keep buying ASX 200 shares?

So this potent brew of geopolitical turmoil, high oil prices and sticky inflation has understandably caused a lot of uncertainty on the share market and is arguably at least partly responsible for the new lows for the ASX 200 that we are currently seeing.

But I'm still buying ASX shares, and I think most investors should be doing the same.

The ASX is no stranger to wars, inflation, geopolitical uncertainty, high oil prices, and bad news in general. The share market has experienced them all before yet it has always come out the other side ready to hit new all-time highs. Now, it's certainly possible that this time it's different. But I doubt it.

No one knows when the share market will recover from this current slump. But history tells us that it will almost certainly do so… eventually. So why not take this opportunity to buy your favourite ASX shares at a discount?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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