The S&P/ASX 200 Index (ASX: XJO) is under pressure again on Monday, with the market sliding closer to correction territory.
At the time of writing, the ASX 200 is down around 1.4% to 8,299 points, extending its recent decline. The index is now approaching a 10% fall from its recent peak, which is typically considered a market correction.
Let's take a closer look at what is driving the sell-off and whether there's more pain ahead.
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Global risks rattle investor confidence
One major factor behind the weakness is the ongoing conflict in the Middle East.
Over the weekend, developments involving the United States and Iran added fresh uncertainty to global markets. Reports of potential military escalation and threats to key oil supply routes have pushed investors into a more cautious stance.
This has already flowed through to global markets. US indices ended last week lower, with tech stocks leading the decline. The Nasdaq is now also nearing correction territory after a sharp pullback in recent weeks.
This has also weighed on the local market, with investors rotating out of equities and into safer assets such as bonds.
Energy rises, but most sectors fall
Looking across the ASX today, the selling has been broad, with most sectors in the red.
The S&P/ASX 200 Materials Index (ASX: XMJ) has been among the hardest hit, falling around 3.2%, reflecting weakness across mining stocks. The S&P/ASX 200 Information Technology Index (ASX: XIJ) is also under pressure, down roughly 1.4%, while the S&P/ASX 200 Real Estate Index (ASX: XRE) has dropped close to 2%.
The S&P/ASX 200 Financials Index (ASX: XFJ), which carries a heavy weighting in the index, is also lower, down about 0.8%. The S&P/ASX 200 Industrials Index (ASX: XNJ) and the S&P/ASX 200 Consumer Staples Index (ASX: XSJ) have also edged lower, pointing to widespread weakness across the market.
One of the few areas showing strength is the S&P/ASX 200 Energy Index (ASX: XEJ), which is up slightly, gaining around 0.1% on higher oil prices.
Is this the start of a bear market?
While the recent move has been significant, it is important to keep it in context.
A correction is typically defined as a fall of 10% or more, while a bear market usually involves a decline of 20% or more. At this stage, the ASX 200 is approaching the first threshold but remains well short of the second.
Market pullbacks are also a normal part of investing. Even in long-term bull markets, corrections occur from time to time.
That said, if geopolitical tensions escalate further or global growth expectations weaken significantly, the sell-off could deepen.
What should investors watch next?
From here, investors should keep a close eye on global developments.
Oil prices, interest rate expectations, and moves in US markets are likely to remain key influences on the ASX. If things start to calm down, sentiment could improve, but further shocks may keep markets on edge.
Periods like this can also create attractive opportunities for long-term investors.
