The S&P/ASX 200 Index (ASX: XJO) has been enjoying a terrific run, closing in the green each of the past eight trading days.
Yesterday's 1.1% gain saw the benchmark index close at a record high of 7,680.70, knocking down the prior all-time closing high of 7,628.9 points. That one was set way back on 13 August 2021.
The string of gains put the index up an impressive 4.6% since 18 January.
Which brings us to our headline question.
Why is the ASX 200 taking a tumble today?
What's pressuring the ASX 200 on Thursday?
While nothing has inherently changed for the worse for the vast majority of the 200 companies listed on the ASX 200 since yesterday, the benchmark index is down 0.8% in morning trade.
Atop some potential profit-taking post-Wednesday's record close, the biggest headwind dragging on the Aussie markets is blowing out of the United States.
Yesterday (overnight Aussie time), US Federal Reserve chair Jerome Powell threw cold water on investor hopes for a March interest rate cut from the world's most influential central bank.
That means the official US rate is likely to remain at the current 22-year high 5.25% to 5.50% target range for a while longer yet.
Investors reacted by hitting the sell button, sending the S&P 500 (INDEXSP: .INX) to close down 1.6%. The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) fared even worse, closing down 2.2%.
Many tech stocks are priced with future earnings growth in mind, which leaves them particularly sensitive to interest rates.
We're seeing the same thing here in Australia today.
The S&P/ASX All Technology Index (ASX: XTX) – which also contains smaller tech stocks outside of the ASX 200 – is down 1.1 % at the time of writing.
Why is the Federal Reserve unlikely to cut interest rates in March?
US Fed officials revealed yesterday that they're not yet convinced they have the inflation genie securely back inside its bottle.
The Fed's statement noted that it doesn't "expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%".
Powell did say that Fed officials believe the benchmark rate is "likely at its peak for this tightening cycle".
But he underlined that rate cuts may be some way off, adding "Based on the meeting today, I would tell you that I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting."
And with US stocks diving on those words, the ASX 200 is following suit today.
Commenting on the market's reaction to Powell's rather hawkish words, Oscar Munoz, macro strategist at TD Securities said (quoted by Bloomberg), "If stock bulls expected a rate cut in March, Powell seems to have closed the door on that."
Greg McBride, chief financial analyst at Bankrate added:
The Federal Reserve is getting closer to the first interest rate cut, but we're not there yet. Inflation has come down faster than anticipated, but whether or not this can be sustained is central to the Fed's decision about when to begin cutting interest rates…
Interest rates took the elevator going up – but are going to take the stairs coming down.
The takeaway for ASX 200 investors here is patience.
Remember, the benchmark index notched new records yesterday. And whether US and Aussie interest rates begin to come down this month, next month, or not for six months or more, come down they will.
And eventually, the cycle will begin all over again.
