The S&P/ASX 200 Index (AS:X XJO) is finally out of technical ‘correction’ territory for the first time since March. Here’s how it happened.
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The S&P/ASX 200 Index (ASX: XJO) had a pretty ho-hum kind of day, down 0.49% at market close to 6,418 points.
Despite this, the index is still up around 4.4% over the past week, so ASX 200 investors don’t have too much to complain about today.
The ASX 200 is currently at its highest levels since March, when global share markets were in freefall as the impact of the coronavirus pandemic was first becoming obvious. It might be easy to forget, but back in January and February, the ASX 200 was well over 7,000 points. It actually crossed the 7,000-point threshold for the first time ever in January, and went on to go as high as 7,162 points by mid-February, before things started to hit the fan.
On the current level, the ASX 200 is now just 4.1% below where it started the year and just 10.4% below the all-time high we saw in February.
This last point is significant because when the index closed yesterday, it was sitting at 6,446 points, which is equivalent to 9.9% below February’s all-time high. According to reporting in the Australian Financial Review (AFR) yesterday, that means that the ASX 200 is now officially out of ‘correction territory’.
A correction is a share market event that describes the situation when the share market falls more than 10% from the most recent high watermark. Thus, a correction is technically ‘over’ when this 10% gap is once again closed.
What’s pushing ASX 200 shares up?
The ASX 200 is a weighted index, which means the largest companies within it have the largest impact on the overall index.
The top 5 largest companies on today’s levels are as follows: CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
Over the past month, CSL shares are up 3.58%, Commonwealth Bank shares are up 5.23% and BHP shares are essentially flat. Meanwhile, NAB shares are up 10% and Westpac is down 3.3%.
So CSL, Commonwealth Bank and NAB are the shares most likely behind the ASX 200’s rise over the past month.
As we discussed earlier in the week, various commentators have attributed the recent ASX 200 performance (including the above shares) to a combination of the Biden victory in last week’s presidential election, together with the Reserve Bank of Australia’s decision at the start of the month to slash interest rates to another all-time low of 0.1%.
It seems that these factors have now also enabled the ASX 200 to finally ‘correct the correction’ after 8 long months.
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Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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