Why did the ASX 200 just hit a 4-week low?

The ASX 200's sudden four-week low might come down to just one thing.

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Well, it's been another day, and another big drop for the S&P/ASX 200 Index (ASX: XJO) and the Australian share market this Thursday. 

After suffering a 1.3% drop yesterday, the ASX 200 is again under pressure today. At the time of writing, the index has fallen another 0.48% and is back down to under 7,630 points.

Today's latest drop caps off what has been a horrid two weeks for ASX shares. Exactly a fortnight ago, the ASX 200 was riding high, touching 7,880 points and seemingly pushing towards its all-time high of 7,910.5 points.

But it has been down and down for the markets ever since. Today's drop puts the ASX 200 at a new four-week low.

Check that out for yourself below:

So, how did we get here? What has caused investors to lose so much of the optimism we saw just two short weeks ago?

Why are investors tanking the ASX 200?

Well, let's start at the beginning. Two weeks ago, investors were on a high following good inflation news out of the United States, as well as the latest Australian unemployment figures out of the Australian Bureau of Statistics (ABS).

With US inflation falling, and Australian unemployment ticking up, it seemed the stage was set for a round of global interest rate cuts. And interest rate cuts are, as we've learned over the past few years, what stock market investors desperately want to see.

The first 'canary in the coal mine' for these interest rate assumptions was the revelation on 21 May that the Reserve Bank of Australia (RBA) nearly hiked interest rates earlier this month. As we noted at the time, the RBA pointed out that "Inflation in Australia had declined more slowly than anticipated" over the past few months.

This was enough to put a dent in ASX 200 investors' optimism at the time.

Inflation dashes rate cut hopes

However, the latest Australian inflation figures that were released yesterday confirmed ASX 200 investors' fears and poured cold water on the notion that the next move from the RBA will be a 2024 cut.

As we covered during Wednesday's session, Australian inflation came in at a higher-than-expected 3.6% for the 12 months to 30 April 2024. Most experts were expecting a drop from the previous month's 3.5% down to 3.4%. So to see inflation actually uptick to 3.6% highlighted why the RBA nearly hiked rates earlier this month.

As such, it certainly seems as though the RBA's next move might indeed be a hike, and not a cut.

Upon the release of these inflation numbers yesterday, the ASX 200 tanked. The selling pressure continues today.

So, it's probable that the ASX 200 has hit a new four-week low today due to these inflationary fears, combined with the fading optimism that interest rates will fall in 2024. Let's see what happens next.

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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