ASX 200 drops again. This is what's starting to worry investors

The ASX 200 is tracking lower as volatility continues…

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The S&P/ASX 200 Index (ASX: XJO) is yet again under pressure on Friday, with weakness across most sectors weighing on the benchmark.

At the time of writing, the ASX 200 is down 0.53% to 8,746 points. The index briefly traded lower earlier in the session, continuing a softer run into the end of the week.

This follows several days of choppy trading, with news headlines starting to play a bigger role in short-term sentiment.

Here's what is driving the move.

Digital screen of stock exchange showing shares in the red.

Image source: Getty Images

Oil prices are back in focus

One of the main factors sitting over the market is the recent rise in oil prices.

Brent crude has pushed back above US$106 per barrel, holding near recent highs after a sharp rebound over the past week.

That move has been linked to the ongoing tensions in the Middle East, particularly around supply disruptions and shipping risks.

Keep in mind, higher oil prices tend to act as a huge headwind for equity markets.

They feed into inflation expectations and raise concerns around input costs, which can pressure margins across a wide range of sectors.

And that is showing up in today's session.

Selling spreads across the ASX

The decline is not being driven by a single sector.

More than half of the ASX sectors are trading lower, with weakness across financials, materials, and consumer-facing businesses.

Large-cap banks are mixed, with the S&P/ASX 200 Financials Index (ASX: XFJ) down around 0.3%.

Miners are under pressure, with the S&P/ASX 200 Resources Index (ASX: XRJ) down roughly 0.8% as commodity prices ease.

Lithium companies have also been weaker, following production updates and ongoing pricing uncertainty.

There are still pockets of strength, though.

Energy stocks are outperforming, with the S&P/ASX 200 Energy Index (ASX: XEJ) up around 1.7%, while S&P/ASX 200 Utilities Index (ASX: XUJ) are also higher, gaining roughly 1.6%.

But unfortunately that has not been enough to offset the wider pullback across the index.

Recent momentum starts to fade

Looking at the recent trend, the ASX 200 had been holding up reasonably well through March and early April.

The benchmark index remains up close to 10% over the past 12 months, supported by gains in large-cap stocks and strong performance from key sectors.

However, the past week has seen momentum start to shift.

The index has pulled back from recent highs and is now tracking lower into the end of the week.

Daily moves have also become more volatile, with buying interest starting to fade.

Motley Fool contributor Aaron Teboneras 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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