The S&P/ASX 200 (ASX: XJO) has fallen to a six-week low. The question is: why?
Australians have decided that interest rates are going up again.
The index lost a flat 1% on Tuesday to finish at 8,920.8 points.
That leaves the market back below 9,000 points and more than 3% below where it traded in mid-August.
Image source: Getty Images
What fell on the ASX 200
The damage was not spread evenly across the market.
Consumer discretionary shares were the worst sector by a wide margin, falling 1.88%.
Technology shares dropped 1.76% and financials lost 1.63%.
Listed property fell 1.46%.
Utilities were the only sector to post a meaningful gain, rising 0.59%.
Looking more deeply into this, that pattern seems like a textbook interest rate reaction.
Investors sold anything that depends on household spending and bought the things that behave like bonds.
Consumer sentiment did the damage
The trigger arrived before the market opened.
The Westpac-Melbourne Institute Index of Consumer Sentiment fell 5.2% in September to 84.4.
Any reading below 100 means pessimists outnumber optimists, so 84.4 is a weak result.
The report itself was blunt about the cause.
The fall takes sentiment back towards the deeply pessimistic levels seen earlier in the year. Both fuel prices and interest rates again look to be driving the move.
Nearly two-thirds of consumers now expect mortgage rates to rise within twelve months.
Assessments of family finances dropped 9.2%, and among homeowners the fall was 13%.
Westpac then moved its own forecast to a November rate rise, joining ANZ and CommBank.
That followed June quarter national accounts showing the economy growing 0.4% for the quarter and 2.1% over the year.
JB Hi-Fi and Harvey Norman are wearing it
Two retailers show what all of this looks like at the company level.
JB Hi-Fi Ltd (ASX: JBH) shares fell 2.25% on Tuesday to $66.07.
That is a fresh 52-week low, and the shares are now down 42.8% over twelve months.
Harvey Norman Holdings Ltd (ASX: HVN) shares closed flat at $4.32.
They are just above a 52-week low of $4.15 and are down 41.3% over the year.
The FY26 results do not explain those falls
Despite this sell-off, both companies actually posted reasonably strong results.
JB Hi-Fi lifted FY26 revenue 4.8% to $11.06 billion and net profit after tax 6% to $489.9 million.
Earnings before interest and tax rose 5.8% to $734.4 million.
The total dividend jumped 22.5% to 337 cents per share fully franked, and the company finished the year with $206.5 million of net cash and no interest-bearing debt.
For its part, Harvey Norman grew total system sales 3.1% to $9.64 billion and statutory profit before tax 4.9% to $790.29 million.
Its fully franked dividend rose 3.8% to 27.5 cents per share.
Chair Gerry Harvey said of the results:
FY26 delivered growth in operating earnings, continued international expansion and strong franchise profitability. With total assets approaching $9 billion, net assets approaching $5 billion, substantial property ownership and low gearing, we remain well positioned to deliver long-term sustainable growth for our shareholders.
Foolish takeaway
A 1% fall is not a crash, and the ASX 200 remains only modestly below its August level.
What changed on Tuesday was the assumptions behind the market.
Investors had been pricing in a pause, and they are now pricing in a hike.
